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, provided that the death occurs within a specified period of time. However, the policy does not provide any return beyond the stated profit, unlike an insurance policy that allows investors to share in the returns from 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 annually renewable term life (ART).

Guaranteed level life span.

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

Term Life Insurance Premium Refund

Return of Premium Term Insurance (ROP) 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 living. 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 term 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 can still offer cash surrender values ​​if the insured does not go dead.

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 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 was created to provide more flexibility than Whole Life by allowing the holder 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 holder, while the details of lifetime investments tend to be quite sparse. Premiums, which are variable, are broken down by the insurance company 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 rather than pumping in more money. If the owner remains insurable, a larger portion of the insurance premium can be applied, increasing the death benefit. Unlike a lifetime, cash value investments grow at a variable rate that is adjusted monthly. There is usually a minimal rate of return. These changes in the interest scheme allow the holder to take advantage of rising interest rates. The danger is that falling interest rates can cause premiums to go up and even cause the policy to lapse if the interest can no longer pay a portion of the insurance costs.

Guaranteed life insurance up to 100 years

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. Most of the time, this is accomplished within a universal life policy, with the addition of a feature commonly known as “no-lapse rider.” Some, but not all, of these plans also include an “maturity extension” feature, which states that if the insured lives to age 100, after having paid “no maturity” premiums each year, the total face amount of coverage will continue. on a guaranteed basis at no charge thereafter.

Survival or second death life insurance

A survivor life policy, also called life from second to death, is a type of coverage that is generally offered as universal or for 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 with wealthy people since the mid-1980s as a method of discounting their inevitable future tax liabilities that can, in effect, confiscate an amount of more than half of a family’s total net worth.

Congress instituted an unlimited marriage deduction in 1981. As a result, most people arrange their affairs in such a way that they delay the payment of any inheritance tax 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 individual permanent life coverage for either spouse.

Variable universal life

A whole way of life that combines some characteristics of universal life, such as the premium and flexibility of the death benefit, with some characteristics of variable life, such as more investment options. Variable Universal Life adds to the flexibility of Universal Life by allowing the holder 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 fees that accompany the insurance policy.

The whole life

Insurance that provides coverage for the entire life of a person, rather than for a specific period. A component of savings, called a cash value or loan value, accumulates over time and can be used to build wealth. Whole life is the most basic form of cash value insurance. Basically, the insurance company makes all the decisions related to the policy. Regular premiums pay for insurance costs and increase equity 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 leans toward insurance over time. Management fees also consume a portion 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.