Navigating Life Insurance

Term Life Insurance

Term Life insurance is life insurance that you pay for during a specified time or term – generally one to 30 years. You select the death benefit amount or face value to meet your needs.

Term policies are generally designed with a maximum issue age that limits the issuer’s exposure to risk to an insured population below a predetermined maximum age limit. Typically, term insurance becomes less available and more expensive as you grow older.

Premiums, or payments, which can be the same amount or increase with time, must be made monthly, quarterly, semi-annually, or annually. If you die during the term of coverage, the face amount of your policy will be paid to your beneficiaries. In the end, the coverage either ends or continues to be available with substantially larger annually increasing premiums. Term insurance policies do not accumulate cash value and usually offer lower premiums than other life insurance products with the same face value. Therefore, you lose all your premium costs when selecting a term product.

Some term products still on the market have a return of premium option. When the policies expire, these products return your total premium payments in one lump sum. The disadvantage of these policies is that their premiums are generally 50% higher than those for traditional term policies.

Universal Life Insurance

Universal Life is permanent insurance that has the potential to accumulate cash value. However, it offers additional features and options. For example, you can increase or decrease your policy’s face amount to accommodate your changing protection needs. You can also increase or reduce the dollar amount of your premium payments and make additional lump sum payments to your policy (within limits set by the IRS). Since a Universal Life policy accrues cash value, you can borrow against its cash account for any purpose.

For a higher premium cost, indexed universal life policies allow you to select a payout option that gives your beneficiary the face amount of the policy plus its accumulated cash value.

You can skip premium payments if your account has accrued sufficient value.

An indexed Universal Life policy also has the potential to earn a higher rate of return than a whole life policy, although there is also a risk that your rate of return could drop. Many indexed universal life policies have riders available for an additional premium charge that protects your principal investment and guarantees a minimum rate of return. Ask your agent about how an indexed policy works before you own one. Your agent can look at the market and select a policy with index crediting strategies and rider guarantees that balance your risk tolerance with your desired participation in the underlying index.

Whole Life Insurance

Whole Life Insurance is life insurance that you own for your entire lifetime. The death benefit amount (policy face value) can be selected to meet your needs.

Premium payments are fixed and can be paid monthly, quarterly, semi-annually, or annually. As more premiums are paid, your policy accumulates a cash value that grows on a tax different basis. Choosing a whole life is like buying a house versus renting it. The monthly cost is higher than a term life policy, but you gain equity with each payment. Its cash value is an asset on your financial statement.

You can borrow against a Whole Life policy for any purpose. Loans, however, require you to pay interest, and any borrowed amount you do not pay back is deducted from the payout to your beneficiary at the time of your death.

Three types of companies issue whole-life policies: stock companies owned by their stockholders, fraternal benefit associations, and mutual companies their policyholders own. Mutual companies and fraternal benefit associations may pay dividends to their whole-life policyholders in addition to the interest credited in the policy cash accounts. Stock companies pay dividends to their stockholders, not their whole-life policyholders.

Whole-life policies can be structured to be paid up within a specified time frame, or you can own them with a single lump-sum premium payment. Although the premiums are higher for these options, the long-term benefits of policy ownership can be substantial. Cash values generally accumulate faster within these policies; payment periods are shorter, and total costs may be substantially less than lifetime payments. These policies best suit retirement, estate preservation, legacy, and business life insurance strategies.

Final Expense Insurance

Your family means the world to you. The last thing you want is to leave them with major expenses after you’re gone. Final Expense insurance is life insurance that helps provide the money you need to pay medical bills, funeral expenses, legal fees, or unpaid bills that remain when your income is no longer in the picture. (Even if you are retired, your household’s Social Security income will significantly reduce.) It is an insurance policy that can protect your loved ones from the immediate financial impacts of your passing away.

There are few things more profoundly moving than dealing with a family that has to borrow money or solicit donations to pay funeral costs following the loss of a loved one. You can see their grief multiplied by financial stress and a sense of frustration.

Final expense policies can be issued in small face amounts with simplified underwriting and can be tailored to almost any budget. Please be aware that some companies are selling term policies with banded premiums, increasing premium whole-life policies, and promoting them to cover final expenses. These policies serve a helpful purpose in the market, but their purchasers often misunderstand them. If you live a long life, generally past 80 or 85, these policies become unaffordable for most people or cease to be renewable.

Generally, a final expense policy should be a level premium whole-life policy that will be affordable as long as you own it and will be there when your family needs it. Term life and banded premium final expense products with lower premium cost per $1,000 of insurance can be used in earlier retirement years to provide much-needed additional benefits to your loved ones who will suffer a substantial loss of household income. Planning ahead can protect your loved ones from unnecessary financial losses when you die.