Life Insurance
There are several different types of life insurance products available to consumers today, this page will give you a brief introduction of those products, and when each may be the most appropriate choice.
Life Insurance Products
Term (short for temporary) Insurance
Term insurance is a life insurance policy that pays off only if the insured dies during the term of the policy. At the end of the term, the policy terminates and no death benefit is paid. The easiest way to explain the product is to equate it to renting life insurance protection.
Most of the policies available today are designed to have you pay a level premium for a pre-determined period of years. Consumers can choose from a series of different terms usually offered, for example: 10, 15, 20, 25 or 30 years. If the insured dies during that policy term, the company will pay to the beneficiary the face amount of the policy.
Consumers need to choose:
- The face amount of the policy.
- The term of the coverage.
- Who should own the policy?
Term Policies are often convertible to permanent life insurance without further evidence of insurability. Who should own Term Insurance?
Q. Who will be the beneficiary of the life insurance?
- A young family that needs income protection, but does not have much money to spare.
- Someone with a specific goal in a set time period that he or she wants met in the event of their untimely death, such as putting a child through college, paying off a mortgage, or providing for final expenses.
- For someone who has no other insurance need after the term expires or has other permanent insurance to cover those needs.
Q. What should a consumer look for in selecting a term life product?
A policy with:
- A convertibility feature. Convertibility allows the consumer to convert to a permanent life insurance policy without having to take another physical.
- A living benefit feature. In the event of a terminal illness, you can receive a portion of the policy's proceeds before death, to help pay medical bills or ongoing care.
- A company with strong claims paying ability and ratings.
Q. Business applications for Term Insurance include:
- Coverage on the owner, to allow the heirs to buy back stock in an arranged buy-sell agreement.
- Coverage on key employees to protect the business in the event of that person’s death.
- As an employee benefit.
- To cover outstanding business loans.
Q. What alternatives does a consumer have other than this type of product?
Other life insurance types:
- Traditional whole life.
- Variable life.
- Secondary No-Lapse Guaranteed Universal Life Insurance.
Secondary No Lapse Universal Life Insurance
These policies are preferred by most of our Estate Planning and Business clients who are seeking permanent and guaranteed life-long insurance protection at a cost, significantly lower than traditional whole life. The premiums are somewhat higher than limited coverage available from term insurance. Their primary concern is often a guaranteed premium like term coupled with death coverage that has no limit in duration. The policies can be designed to have premiums paid only for a specific period of time, for example, 1, 5, 12, 23 years or for life. The insurer guarantees that as long as that specified premium is paid when due, the death value will be guaranteed no matter how long the client lives. Many of our clients have opted for the limited pay structure to pay the premiums during their working years when their income is greatest, and therefore do not have premiums to pay in retirement.
Whole Life Insurance
Q. What is the product?
Traditional Whole Life or permanent insurance provides lifetime insurance protection with guaranteed cash values, fixed premiums and death benefits as long as premiums are paid.
Q. What are the features of whole life insurance?
- Cash value accumulates income tax-deferred.
- Death benefits are usually income tax free.
- Accelerated Death Benefits allows access, under certain conditions, to receive death benefit proceeds before you die.
- Cash value can be borrowed. Loans will incur interest and any unpaid loan and accumulated interest at the time of death is deducted from the death benefit proceeds and will reduce the amount of death benefit paid to beneficiaries.
Q. What should a consumer look for in selecting a whole life product?
- A company with high ratings from the major ratings agencies.
- Generally, riders will increase the flexibility to provide additional benefits to the whole life insurance policy at an additional cost. Riders that should be considered include:
- Paid Up Insurance provides the option to pay in additional lump sum premiums to increase the life insurance protection should the need arise.
- Accelerated Death Benefits allow access under certain conditions to receive death benefit proceeds before you die.
Q. What are the choices consumers have within the product?
Premium payments:
- Premiums can be level for the entire term of the policy, or start out lower in the first few years (usually five), then increase to a permanent level premium.
- Additional premiums can be paid for additional coverage through the use of riders.
Q. When should whole life be used?
If you want insurance protection for a long period of time and can pay a fixed premium. If you desire a permanent life insurance policy with guarantees, cash values and fixed premiums.
What should a consumer look for in selecting a whole life product?
- A company with high ratings from the major ratings agencies.
- Generally, riders will increase the flexibility to provide additional benefits to the whole life insurance policy at an additional cost. Riders that should be considered include:
- Paid Up Insurance provides the option to pay in additional lump sum premiums to increase the life insurance protection should the need arise.
- Accelerated Death Benefits allow access under certain conditions to receive death benefit proceeds before you die.