Many Choices

Selecting the right insurance policy for your specific needs can be complicated. That is where an experienced agent like myself can help to sort through the options. Below are explanations of the various types of life insurance and their uses. Please feel free to contact me to help you through the selection of the right type and company.

Final Expense Insurance

Final expense life insurance is coverage specifically intended to pay the expenses that arise at the end of one’s life, such as funeral costs. Final expense insurance products are characterized by a low face amount and ease of acceptance.

Term Insurance

Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else.

There are three key factors to be considered in term insurance:

•  Face amount (protection or death benefit)
• Premium to be paid (cost to the insured)
• Length of coverage (term)

Various insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase.

Whole Life

Whole life insurance provides lifetime death benefit coverage for a level premium in most cases. Premiums are much higher than term insurance at younger ages, but as term insurance premiums rise with age at each renewal, the cumulative value of all premiums paid across a life time are roughly equal if policies are maintained until average life expectancy. Part of the insurance contract stipulates that the policyholder is entitled to a cash value reserve, which is part of the policy and guaranteed by the company. This cash value can be accessed at any time through policy loans and are received income tax free. Policy loans are available until the insured’s death. If there are any unpaid loans upon death, the insurer subtracts the loan amount from the death benefit and pays the remainder to the beneficiary named in the policy.

Universal Life Insurance

Universal life insurance (UL) is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payment, along with the potential for greater growth of cash values. There are several types of universal life insurance policies which include interest sensitive (also known as “traditional fixed universal life insurance”), variable universal life (VUL), guaranteed death benefit, and equity indexed universal life insurance.

A universal life insurance policy includes a cash value. Premiums increase the cash values, but the cost of insurance (along with any other charges assessed by the insurance company) reduces cash values. However, with the exception of VUL, interest is paid at a rate specified by the company, further increasing cash values. With VUL, cash values will ebb and flow relative to the performance of the investment sub-accounts the policy owner has chosen. The surrender value of the policy is the amount payable to the policy owner after applicable surrender charges, if any.

Universal life insurance addresses the perceived disadvantages of whole life – namely that premiums and death benefit are fixed. With universal life, both the premiums and death benefit are flexible. Except with regards to guaranteed death benefit universal life, this flexibility comes the disadvantage of reduced guarantees.