Term Life Insurance
Term insurance is straightforward, affordable and easy to understand. It is specifically designed to secure your family finances, if an income earner dies unexpectedly. Term plans offer guaranteed protection for a specific period of time, and can help provide for a family's loss of income, cover short-term debts, pay off a mortgage or fund a college education.
· Typically gives you the largest death benefit for the smallest annual premium.
· Provides a guaranteed premium for a defined number of years for a defined death benefit.
· May be purchased on an annual guaranteed basis with each year’s premium increasing.
· Most term insurance policies can be extended at very high costs.
· Most term policies can be converted into a permanent type of coverage based on your new age.
Universal Life Insurance (Guaranteed and Non-Guaranteed)
Generally speaking, universal life (UL) insurance policies provide a permanent death benefit. The difference between guaranteed and non-guaranteed lies in the variable nature of the cash value within the policy.
· Make sure you identify the age to which the death benefit is guaranteed. The maximum is age 121.
· The lower the age of the death benefit guarantee, the less expensive the premium, since the potential arises that the policy will lapse before death and the insurance company will not need to pay out a death benefit.
· When comparing, always compare the guaranteed column of UL products.
Index Universal Life Insurance
Index universal life (IUL) insurance includes the premium flexibility and adjustable death benefit that typical UL coverage provides. IUL provides the potential for greater policy value growth than UL, with less risk than a variable universal life policy.
IUL policies link the growth of policy value to the percentage change of one or more widely-followed financial market indices such as the S&P 500 Index, Nasdaq-100, or Dow Jones Industrial Average. As a rule, IUL policies also include a fixed-rate interest crediting option.
· Compare the cap that represents the maximum crediting rate and the floor that represents the minimum crediting rate. Based on the percentage change in the index, interest will be credited between the cap and floor.
· The change in the index is calculated from a specific date to a specific date, typically on a monthly or annual basis, so there is an element of roulette as any day could represent a single day disparity relative to the overall average change in an index.
Variable Universal life insurance
· Variable universal life insurance (VUL) offers permanent lifetime insurance protection, flexible premium payments and the ability to build cash value. It is often used to supplement income with tax free distribution from base and loans.
· VUL has the potential for greater cash value growth than other types of life insurance. It provides opportunity to choose from a variety of investment options across risk categories.
· VUL can also lose cash value. If you’re comfortable with market fluctuations, this type of policy may be an option to consider.
· VUL could lapse prior to your death; It is important to identify the guarantees within the policy design.
Whole Life Insurance (typically associated with Guarantees and Cash Value)
Whole life insurance, also referred to as cash value life insurance, provides a lifetime death benefit for a set premium amount and builds cash value you can use while you’re living. The strength of a whole life insurance policy is that it provides guaranteed cash values and benefits in return for fixed premiums. And may be used to supplement income with tax free distribution from base and loans.
· Whole life can be structured for a higher death benefit or to maximize cash value.
· Loans on whole life will be defined in the contract as direct or indirect recognition.
· Loan interest rates will defined in the contract as guaranteed and variable.
· Be aware of adjectives such as variable or flexible as these terms effect the guarantees of the plan.
Term vs. permanent life insurance
To determine whether a term or permanent life insurance policy is the right choice for you, it is important to consider factors such as:
- The time period your insurance protection is needed
- Short and long term goals
- Risk tolerance
- Retirement plan
- Estate plan
Be sure to work with an independent or a licensed insurance advisor (LIA) to get unbiased recommendations who works collaboratively with certified financial planners (CFP).