LIFE INSURANCE

WHAT IS LIFE INSURANCE?

Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death.

Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.

There are two primary types of life insurance: term and permanent life. The permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.

TERM LIFE INSURANCE

In addition to being the most affordable type of life insurance, term life insurance is the most popular type of life insurance sold (71% of purchasers) according to the Insurance Barometer Report.

Term life insurance provides coverage for a certain amount of time and the premium payments stay the same amount for the duration of the policy. Typical choices are policy lengths are 10, 15, 20, 25 or 30 years.

If you pass away within the term of your policy, your beneficiaries can make a claim and receive the death benefit money, tax-free.

PERMANENT LIFE INSURANCE

Permanent life insurance provides lifelong coverage. It’s more expensive than term life because it:

• Can last for the duration of your life.
• Usually builds cash value.

The cash value component accumulates on a tax-deferred basis over the life of the policy. It acts as a savings portion of the policy. Typically, you can borrow against the policy’s cash value or make a withdrawal. If you decide to end the policy, you can get the cash value minus any surrender charge.

In some policies the cash value may build slowly over many years, so don’t count on having access to a lot of cash value right away. Your policy illustration will show the projected cash value.

There are several varieties of permanent life insurance:

Whole life insurance offers a fixed death benefit and cash value component that grows at a guaranteed rate of return. Many whole life insurance policies pay out dividends that can be used to reduce premium payments or can add to your cash value.

Universal life insurance often offers more flexibility than a whole life insurance policy. You may be able to alter your premium payments and death benefit, within certain limits. With a universal life insurance policy, the cash value will build depending on the policy type. For example, an indexed universal life insurance policy will have cash value tied to an index such as the S&P 500. A variable universal life policy will typically have investment subaccounts that you can choose and manage.

FINAL EXPENSE

Final expense insurance (also known as “funeral insurance” or “burial insurance”) is a form of a whole life insurance policy with a small death benefit. It is beneficial in that it is easier for seniors to get approved for it. Most often it requires answering only a couple of health-related questions, but a medical exam is not obligatory.

GUARANTEED ISSUE

Guaranteed issue life insurance, or guaranteed acceptance life insurance, is a type of whole life insurance policy that does not require you to answer health questions, undergo a medical exam, or allow an insurance company to review your medical and prescription records. You may also see it referred to as “no questions life insurance” or “no questions final expense insurance.”