Types of life insurance policies: which one is right for you?

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

Term life renewable annually.

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 an Annually Renewable Term (ART) life.

Guaranteed standard of living.

Many companies now offer level term life insurance as well. 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 the rate on your life insurance, even during the time you expected your premiums to remain level. It goes without saying that it’s important to make sure you understand the terms of any life insurance policy you’re considering.
Refund 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 remain 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 life insurance types; 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 terminates as long as 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. Furthermore, the inner workings of the investment process are openly displayed to the holder, while the details of lifetime investments tend to be quite 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 savings are underperforming, they can be used to pay premiums instead of pumping more money into it. If the owner remains insurable, a higher portion of the premium may be applied to the insurance, increasing the death benefit. Unlike whole life, cash value investments grow at a variable rate that adjusts monthly. Usually there is 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 a policy to lapse if interest can no longer pay a portion of insurance costs.

Up to 100 years guaranteed life insurance level

This type of life policy offers a guaranteed level premium up to 100 years, along with a guaranteed level death benefit up to 100 years. In most cases, this is accomplished within a universal life policy, with the addition of a feature commonly known as “no ride-on.” Some, but not all, of these plans also include a “maturity extension” 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.

Survival or 2nd dead life insurance

A survivor life policy, also called 2nd-to-die life, is a type of coverage that is generally 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 that, in effect, can seize an amount of more than half of a person’s total net worth. family.

Congress instituted an unlimited spousal deduction in 1981. As a result, most people arrange their affairs in such a way that they 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, thereby 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 decisions regarding the policy. Periodic premiums pay insurance costs and build principal 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.