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Life Insurance

There are many types of life insurance and many insurance companies that offer them.  Life Insurance is an important life tool that can provide you with much needed financial support.  It is important that when purchasing any financial or insurance product that you consider the strength of the company offering the product.  A brief explanation of the most important types of life insurance:

TERM LIFE

One of the cheapest forms of life insurance and it covers a specific period of time and premiums are paid for as long as the policy is in effect.  This type of life insurance has no cash value and once the term is up your death benefit expires.

Term life is appropriate for young families and it provides financial protection in the event of the death of the parent(s) of young children.  It is also appropriate to provide monies for specific purposes such as funeral expenses.

  • Level term – everything remains level for the entire term of your policy; premiums and life benefit.
  • Annual Renewable Term (ART) – The death benefit remains constant but the contract is renewable yearly and the premiums are based on your age and increase as your age increases. (Universal Life and Whole life)
  • Decreasing Term – The premiums remain the same throughout the policy term but the death benefit decreases until it hits “0” when the policy expires.

UNIVERSAL LIFE

This type of life insurance is called permanent insurance because the policy is in effect for your lifetime (as defined in your policy) and has  a cash component.  Part of your premium will be deposited into a cash account  which earns interest and accumulates tax-deferred.  A portion of this cash account is used each month to pay for any increase that the life insurance piece of your premium may have experienced due to  a life insurance  rate increase based on your age (Annual Renewable Rate) and product expenses.  This cash portion is called  the “cash value” and adds additional flexibility to your product offerings.  This type of insurance is often used as a tax shelter because you can add to the cash portion of your premiums (which are not set but are flexible) in order to accumulate more tax-free cash.  Your agent can explain how this works depending on your policy and originating insurance company.

WHOLE LIFE

This is another type of permanent life  insurance (refer to your policy for term definition).  This life insurance has two components; one a life insurance component a form of term life that is annually renewed based on your age (ART) and a Cash Account.  Your premium pays first for the life insurance portion of your policy and any expenses then depositing the remainder into your cash account which earns interest and accumulates tax-free and is referred to as the “cash value”.  There are no surprises with this kind of life insurance; you know your premiums, which are level and are not flexible, interest rate on cash account and death benefit for the life of the policy.

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