Types of Life Insurance
Term & Cash Value (Universal Life Insurance & Whole Life Insurance) are two main types of life insurance, but what’s the differences.
There are 2 types of Life Insurance.1) Term Life Insurance – For a specific period of time & 2) Permanent Life Insurance – Builds value, living benefits as well as death benefits. This means not only for your beneficiaries, but also for your benefit as you live. With Permanent Life Insurance, there are two (2) types of permanent life insurance: a) Whole Life Insurance & b) Universal Life Insurance & Indexed-Universal Life Insurance 1) Term Life Insurance 2) Universal Life Insurance & Indexed-Universal Life Insurance 3) Whole Life Insurance Key Man Life Insurance – Business Owners, Business Executives, key Employees. Can be to buy out a partner in case of death or to guarantee a business loan (debt) obligation or an investor.
Term Life Insurance is the most popular type of life insurance available today. As the name implies, it is designed to stay at a certain price for a specific term (period of time / length of time).
In the short term, term life insurance is the simplest and least expensive type of policy. After the end of the term (certain period), then the price jumps up dramatically, similar to an ARM Mortgage (Adjustable Rate Mortgage). It’s pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whoever you’ve designated, upon a specific event – your death. The death benefit and the policy limit are the same – a $200,000 policy pays a $200,000 death benefit. The policy protects your family by providing money they can invest to replace your salary, as well as to cover final expenses incurred by your death.
You purchase term life to provide coverage for a guaranteed number of years: 10, 15, 20, 25 or 30 years. Some term life insurance companies offer a return of premium option. This allows you to receive 100% of the premiums you’ve paid into the plan.
Also available in most states as well, there can be a no exam term life insurance. This type of insurance is becoming very popular. No exam term life insurance is when a medical exam is not required to receive coverage. You are still able to choose the term of your insurance. This type of term insurance can save you a lot of time.
The face amount (death benefit) is also guaranteed to remain level for the number of years you select. It will not decrease each year, but will remain level for the number of years you select. Term insurance provides you with a GUARANTEED contract: GUARANTEED level face amount; GUARANTEED length of time (10, 15, 20, 25 or 30 years); GUARANTEED level premium (one that can never be increased during your specified length of time).
Level term insurance premium is guaranteed to remain the same for the number of years you select that you want your policy to remain in force. Term insurance premium is lower than other types of life insurance and its premium can never be increased because of health change or as you grow older. Apply for an instant term life insurance quote online and compare the different life insurance companies and their rates.
The younger one is, the cheaper it is.
The older one is, the # of years of coverage (terms) offered are shorter than in the younger years of life.
At age 70 to 75, the maximum term policy available is a 15 year term.
Up to age 85, only a 10 year term policy is available.
The cost of term life insurance increases as the age increases.
Universal life insurance provide both a death benefit and a cash value account. The premiums are more than term life premiums, however, they build up cash value in addition to only having a death benefit from the life insurance. These policies are referred to as cash value policies.
The best of both worlds gives you a guaranteed contract (same as term insurance but with longer periods of coverage) and equity buildup on a tax deferred basis.
As the cash value grows, you can borrow against the cash value at any time. The cost to borrow is much, much less than from a bank loan. It’s some of the cheapest money to ever borrow from in your life.
There are variations of Universal Life Insurance, called Index Universal Life (Indexed UL), that offer cash value returns tied to to a particular stock exchange index (ie. Dow Jones, Nasdaq or S&P 500, Euro-Index, Global indexes). Indexed U.L. policies have a no downside risk to market losses with the cash value and also provide large upside to profits from market gains that are tied to the chosen index.
There are tax advantages to a universal life policy as well.
It gives you the best of both worlds. It gives you a mixture of both Term & Cash Value and the flexibility of a whole Life Policy.
1) Borrow against your universal life insurance policy with no penalty for withdrawing funds prior to age 59 1/2. (Tax Free access to the cash value).
With 401-K’s & IRA’s, in most cases you are taxed to borrow funds against your plan prior to age 59 1/2. This is a huge advantage of why to have cash funds in a Universal Life Insurance policy. Access to the funds are immediate. Access to the funds is liquid. It’s a matter of a phone call, complete a signature authorization form & the insurance company will overnight a check to you or deposit the funds into your account. It’s that simple.
We have insurance carriers that the universal life policies have a lower interest rate that you borrow at and the interest that is credited is at a higher rate than the borrowing rate. Even when you borrow funds, you still receive an interest credit at the higher rate than what you borrow from your own policy. This is called “Arbitrage”.
2)Protection from creditors in a bankruptcy.
3) Cheaper than whole life, similar to Term Insurance
4) Better than Term, coverage goes until past age 100+, even to 115 with some carriers.
5) Issue Age: Can go up to age 85 (Depending on which insurance company / carrier)
Whole Life Insurance is “Permanent Life Insurance”, similar in concept to a 15 year mortgage. You pay more upfront (either monthly or annual payments), but in the long run, it’s much cheaper over many years. It provides a fixed premium which can’t increase during your lifetime as long as you continue to pay the planned amount.
It allows the insurance company to exclusively manage the cash value account in your policy.
It provides you the option to receive dividends from your policy or apply them to reduce payments.
It offers you the right to withdraw from the policy during your lifetime. So you can borrow against the cash value of your own funds. So you are borrowing money from yourself.
It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax-deferred cash accumulation.
What Whole Life Insurance doesn’t do
It doesn’t offer the account flexibility to invest in separate accounts such as money market, stock, and bond funds. It doesn’t allow you the account flexibility to split your money among different accounts or to move your money between accounts.
- We have special life insurance services and products for non-standard issued life insurance policies. (This is a partial list, there are other impaired medical conditions & also other high risk reasons to be rated a non-standard policy that we can underwrite for):
- High Risk Life Insurance (Impaired Risk Life Insurance)