Life Insurance
Life insurance is the best way to protect against an untimely death. It can help pay your final expenses, pay off debt, and provide income for the surviving beneficiary. There are many types of life insurance available to meet your unique needs. There are two major types of life insurance: Term Life Insurance and Permanent Life Insurance.
Term Life Insurance
Term insurance is designed to last a specified number of years, then it will end. The term (number of years) is chosen when you take out the policy. You choose the term which in turn will change the cost of the policy. Shorter terms are typically cheaper than longer terms. The most common terms are 10, 15, 20, and 30 years. These are great policies to cover the life stage where you have the most debt and longest period of income replacement for the surviving beneficiary. Many take out term policies to cover their debts and replace their income for a certain number of years. For example, a 30 year old with a $200,000 mortgage and an annual income of $75,000 may take out a 20 year term policy with a payout of $800,000 ($200,000 mortgage + ($75,000 income x 8 years)). This is not a one size fits all calculation. Consult your financial advisor to determine an appropriate amount of payout that is right for you and your individual needs. You do not have to wait to renew your term insurance, but the new premiums will be calculated off of your current age, not the age when you took out the originally policy.
Permanent Life Insurance
Permanent Life Insurance will stay in force for your entire life unless you surrender the policy or stop paying the premiums. It is more expensive than term since it is guaranteed for your entire life. As you pay premiums, part will go to the coverage and part will build as cash value. Depending on the type of permanent insurance, the cash value can earn interest or be invested in separate accounts to earn returns from the stock market.
TYPES OF TERM INSURANCE
Renewable Term
Renewable Term gives a quote for the year the policy is taken out. Premiums will increase annually with your age. These policies are cheap at the front and more expensive at the end.
Decreasing Term
Decreasing Term is a type of renewable term insurance with a payout that decreases over time. This is a great type of insurance that is purchased to cover a specific debt that is being paid down each year such as a mortgage.
Convertible Term
Convertible Term is a type of term insurance that allows you to convert it to permanent insurance when the policy expires.
TYPES OF PERMANENT INSURANCE
Whole Life
Whole Life accumulates a cash value that you can use as a source for loans, cash, or to pay policy premiums.
Universal Life
Universal Life (UL) accumulates a cash value that earns interest. UL has a flexible premium, meaning you can pay more at the beginning or the end. UL can have a level or increasing death benefit.
Indexed Universal Life
Indexed Universal Life (IUL) accumulates a cash value that allows you to earn a fixed or equity-indexed rate of return.
Variable Universal Life
Variable Universal Life (VUL) allows you to use the cash value to invest in a separate account which behaves similar to a mutual fund. VUL also has flexible premiums and can be designed with a level or increasing death benefit.
