Life Insurance
Term Life Insurance
Term insurance is a type of life insurance that provides coverage for a specified period of time, such as 10, 20, or 30 years. In other words Term Insurance eventually TERMinates. If the insured individual passes away during the term of the policy, the beneficiary receives a lump sum tax free death benefit payout. Basic term insurance policies are typically less expensive than other types of life insurance, such as whole life or universal life insurance, which makes it attractive; however, it only pays if the insurer dies during the policy term. Although there are additional riders (that can come with a cost) like a Return of Premium Rider (ROP) that can return a portion or all of the premium paid that can essentially make the policy “Net Zero” at the end of the term. Some Term Policies may also have Living Benefits like Accelerated Death Benefits, Waiver of Premium that will pay a lump sum portion of your death benefit to you if you need Critical Care or have a Terminal Illness.
The key benefits of term life insurance include:
Affordable premiums
Term insurance is generally the most affordable type of life insurance, making it an accessible option for many people. Premiums are typically lower than those for permanent life insurance policies like whole life or universal life insurance.
Flexibility
Term insurance policies are available for different lengths of time, such as 10, 15, 20, 25, 30 or even 40 years, giving policyholders the flexibility to choose a policy that fits their needs and budget.
Simple and straightforward
Term insurance policies are usually easy to understand and straightforward, making it easy for people to compare different policies and choose the one that’s right for them.
Protection for loved ones
If the policyholder passes away during the term of the policy, the death benefit can provide financial protection for their loved ones, such as paying off a mortgage, covering college expenses, or simply providing income to help maintain their standard of living if the main income earner passes away.
Convertibility
Some term insurance policies offer the option to convert to a permanent life insurance policy at a later time, which can provide added flexibility for policyholders who want to extend their coverage beyond the original term. This is a good option for a lot people to get started out with insurance coverage, especially at a younger age when you’re the most healthy. You start out with a less expensive convertible term policy that has a guaranteed insurability clause and later in life convert it to a permanent policy without any medical underwriting for the new policy. The permanent policy will have better benefits, like building cash value for the rest of your life and you got it “grandfathered” in for underwriting purposes at a healthier age.
No medical exam required
Some term insurance policies offer coverage without requiring a medical exam (like providing blood, urine, saliva), which can be an attractive option for people who have health issues or are concerned about being denied coverage due to pre-existing conditions. This is typically done through accelerated underwriting where only your medical records are checked and from those checks it is determined you will not need to do a medical exam.
Overall, term insurance can provide affordable and flexible coverage for people who want to protect their loved ones and provide financial security in the event of their unexpected death.
Whole Life Insurance
A whole life insurance policy is a type of permanent life insurance that provides coverage for the entirety of the policyholder’s life as long as premiums are paid, in turn paying the beneficiary a lump sum tax free death benefit when the policyholder passes away. Your policy cannot be canceled by the insurer once you have been approved for the coverage and you pay your premiums and didn’t commit fraud to get the policy. It also includes a cash value component that grows over time ‘tax-deferred’ at a fixed rate determined by the insurance company when purchased and can be withdrawn or borrowed against by the policyholder for any reason or used to pay future premiums. Loans do come with a small interest rate (typically cheaper than a personal loan at a bank) and will reduce the death benefit and available cash surrender value if the loans are not paid back. Withdrawals won’t include any income tax if the withdrawals are less than any premiums paid into the policy.
There are several main benefits of whole life insurance, including:
Lifetime coverage
Whole life insurance provides coverage for the entirety of the policyholder’s life as long as premiums are paid. This provides a level of security and peace of mind for policyholders and their beneficiaries knowing your policy will never be canceled.
Fixed premiums
Whole life insurance policies have fixed premiums, which means that the cost of coverage remains the same over time. This makes it easier to budget for and plan for future expenses.
Cash value accumulation
Whole life insurance policies have a cash value component that grows over time. This cash value can be borrowed against or used to pay future premiums. It can also be used to supplement retirement income, cover unexpected expenses, or leave a legacy for loved ones.
Tax-deferred growth
The cash value component of whole life insurance policies grows tax-deferred, which means that policyholders do not have to pay taxes on the growth until they withdraw and typically only if the withdrawals are bigger than the premiums paid into the policy.
Estate planning
Whole life insurance policies can be used as part of an estate planning strategy to provide liquidity for estate taxes or to leave a legacy for loved ones.
Overall, whole life insurance provides a level of security and flexibility that can help policyholders achieve their financial goals and protect their loved ones. It’s important to evaluate your specific needs and goals before deciding if whole life insurance is right for you.
Universal Life Insurance
Universal life insurance (UL) is another type of permanent life insurance that typically have a minimum premium payment, which is determined by the insurance company based on the policyholder’s age, health, and other factors and goes towards paying for the death benefit. The policyholder can then choose to pay more than the minimum premium, which goes towards building the cash value of the policy. These 2 parts provides both a lump sum tax free death benefit and a savings & investment component. It allows policyholders to adjust the amount of their premium payments and death benefit over time, which makes it more flexible than other types of life insurance. It may also be a tool for estate planning and tax benefits.
The cash value of a universal life insurance policy earns interest, which is credited to the policy on a tax-deferred basis. Policyholders can also use the cash value to pay their premiums, borrow against the policy, or withdraw funds from the policy, subject to certain limitations and tax consequences.
The specific investments that are available with a universal life insurance policy will depend on the insurance company and the policy’s terms. Typically, policyholders have the option to invest in a range of investment vehicles, such as mutual funds, stocks, bonds, or exchange-traded funds (ETFs). Some policies may also offer more specialized investment options, such as real estate investment trusts (REITs) or alternative investments.
Universal life insurance offers several benefits, including:
Flexibility
One of the main advantages of universal life insurance is its flexibility. Policyholders can increase or decrease their premium payments, which can help them adapt to changes in their financial situation. They can also adjust the death benefit, which can help them meet their changing life insurance needs.
Permanent coverage
Unlike term life insurance, which provides coverage for a specific period of time, universal life insurance provides coverage for the policyholder’s entire life. This can be important for individuals who want to ensure that their loved ones will be provided for no matter when they pass away.
Savings component
Universal life insurance includes a savings & investment component that earns interest at a rate determined by the insurance company. This can help policyholders build cash value over time, which they can use to supplement their retirement income, pay for unexpected expenses, or borrow against if needed.
Tax advantages
The savings component of universal life insurance grows tax-deferred, which means that policyholders do not have to pay taxes on the interest earned until they withdraw the money. In addition, beneficiaries typically receive the death benefit tax-free.
Estate planning
Universal life insurance can be a useful tool for estate planning, as it can provide liquidity to pay estate taxes and other expenses. It can also be used to leave a legacy for loved ones or to donate to a favorite charity.
Universal life insurance policies can be complex, and the cost of the policy can increase over time if the cash value does not grow at a sufficient rate to offset the cost of insurance. It is important for policyholders to understand how the policy works and to regularly review the policy with their insurance agent to ensure that it continues to meet their needs.
Indexed Universal Life Insurance
Indexed Universal Life Insurance (IUL) is somewhat similar to Universal Life Insurance, but it allows you to tie your cash value growth to the performance of a stock market index, like the S&P 500. This means that your cash value can grow more quickly if the stock market performs well.
Indexed Universal Life Policies may offer a guaranteed floor or a minimum guaranteed interest rate that provides some level of protection against losses. However, the guaranteed interest rate is typically lower than the potential returns that can be earned from the policy’s investment options.
It is very important to work with someone who is very qualified and has experience explaining these & structuring these polices correctly or you can lose your cash value or even your prinicipal and may even lose the policy all together, especially if you’re not continuing to fund the policy properly and/or take loans/withdrawals which eat into your cash value and eventually your principal which takes away from your Death Benefit. At some point if you don’t keep it properly funded, your policy could lapse.
We work with a very credible agency that primarily focuses on these type of policies and can refer you if you’re interested.
How Can We Help?
No matter where you’re at in your life there is some type of life insurance that is suitable for your needs and budget. Ultimately over time, a person should have various policies that meet specific needs and goals in their life. You usually don’t get them all overnight but you do start somewhere and the BEST insurance policy to have is the one that is ACTUALLY IN FORCE WHEN YOU NEED IT and the one that’s in force when you need it is the policy you purchased and kept payments on.
We offer a variety of life insurance policies to fit your needs & budget. We can help you choose the right policy and terms for you.
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