Types of Life Insurance Policies: Which is Right for You?

Term life insurance, by definition, is a life insurance policy that provides a declared benefit upon the death of the owner, provided that death occurs within a specified period of time. However, the policy does not provide any returns beyond the stated benefit, unlike an insurance policy that allows investors to share in the returns of the insurance company’s investment portfolio.

Annually renewable term life.

Historically, the term life rate increased each year as the risk of death increased. While unpopular, this type of life policy is still available and is commonly known as annually renewable term life (ART).

Guaranteed standard of living.

Many companies now also offer level term life insurance. This type of insurance policy has premiums that are designed to remain level for a period of 5, 10, 15, 20, 25, or even 30 years. Level term life policies have become extremely popular because they are very affordable and can provide long-term coverage. But be careful! Most level term life insurance policies contain a level premium guarantee. However, some policies do not provide such guarantees. Without a guarantee, the insurance company may surprise you by raising your life insurance rate, even during the time you expected your premiums to stay level. It goes without saying that it’s important to make sure you understand the terms of any life insurance policy you’re considering.
Return of term life insurance premium

Return-of-premium (ROP) term insurance is a relatively new type of insurance policy that offers a guaranteed refund of life insurance premiums at the end of the term, assuming the insured is still alive. This type of term life insurance policy is slightly more expensive than regular term life insurance, but the premiums are designed to stay level. These premium term life insurance policy returns are available in 15, 20 or 30 year versions. Consumer interest in these plans has continued to grow each year, as they are often significantly less expensive than permanent types of life insurance; however, like many permanent plans, they may still offer cash surrender values ​​if the insured does not die.

Types of Permanent Life Insurance Policies

A permanent life insurance policy, by definition, is a policy that provides life insurance coverage for the entire life of the insured; the policy never ends as long as the premiums are paid. Additionally, a permanent life insurance policy provides a savings element that builds cash value.
universal life

Life insurance that combines the low-cost protection of term life insurance with a savings component that is invested in a tax-deferred account, the cash value of which may be available for a loan to the policyholder. Universal life insurance was created to provide more flexibility than whole life insurance by allowing the owner to transfer money between the insurance and savings components of the policy. Also, the inner workings of the investment process are openly shown to the owner, while the details of lifetime investments tend to be rather sparse. The premiums, which are variable, are broken down by the insurer into insurance and savings. Therefore, the holder can adjust the proportions of the policy based on external conditions. If the savings are underperforming, they can be used to pay premiums instead of pumping more money. If the holder remains insurable, a larger portion of the premium can be applied to insurance, increasing the death benefit. Unlike whole life, cash value investments grow at a variable rate that is adjusted monthly. There is usually a minimum rate of return. These changes in the interest scheme allow the holder to take advantage of the increase in interest rates. The danger is that falling interest rates can cause premiums to rise and even cause the policy to lapse if interest can no longer pay a portion of the insurance costs.

Up to 100 years guaranteed life insurance level

This type of life policy offers a guaranteed level premium up to age 100, along with a guaranteed level death benefit up to age 100. In most cases, this is accomplished within a universal life policy, with the addition of a feature commonly known as “no ride-hailing.” Some, but not all, of these plans also include an “extended maturity” feature, which states that if the insured lives to age 100, after paying premiums “without interruption” each year, the full face amount will continue. of coverage. on a guaranteed basis at no charge thereafter.

Survivor life insurance or 2nd death

A survivor life policy, also called 2nd-to-die life, is a type of coverage that is usually offered as universal or whole life and pays a death benefit in the event of the subsequent death of two insured persons, usually a spouse. and a wife. It has become extremely popular among wealthy individuals since the mid-1980s as a method of discounting their unavoidable future estate tax liabilities which, in effect, can seize an amount in excess of half of a person’s total net worth. family.

Congress instituted an unlimited marital deduction in 1981. As a result, most people arrange their affairs in such a way as to delay paying estate taxes until the death of the second insured. A “second to die” life policy allows the insurance company to delay payment of the death benefit until the death of the second insured, thus creating the dollars needed to pay taxes exactly when they are needed! This coverage is widely used because it is generally much less expensive than single permanent life coverage for either spouse.

Variable Universal Life

A form of whole life insurance that combines some features of universal life insurance, such as the premium and flexibility of death benefits, with some features of variable life insurance, such as more investment options. Variable universal life insurance increases the flexibility of universal life insurance by allowing the owner to choose between investment vehicles for the savings portion of the account. The differences between this arrangement and the individual investment are the tax advantages and the fees that accompany the insurance policy.

The whole life

Insurance that provides coverage for a person’s entire life, rather than a specific term. A component of savings, called cash value or loan value, accumulates over time and can be used for wealth accumulation. Whole life is the most basic form of cash value insurance. The insurance company essentially makes all the decisions regarding the policy. Regular premiums pay insurance costs and build up capital in a savings account. A fixed death benefit is paid to the beneficiary along with the savings account balance. Premiums are set over the life of the policy, although the breakdown between insurance and savings swings toward insurance over time. Management fees also consume a part of the premiums. The insurance company will invest money primarily in fixed income securities, which means that the savings investment will be subject to interest rate and inflation risk.

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