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Life Insurance
You need life insurance if you owe somebody or love somebody … it's that simple.
Although there are two primary forms of life insurance, Term and Whole Life, the variations of coverage under each category is fairly extensive. The most popular types are detailed below.
The insurance can also be used to protect a mortgage, estate, business (against the loss of a key employee), or even to fund a retirement or as an employment benefit. The most typical approach to determining the amount of coverage is to base it on income replacement, usually about 5-10 times the insured's annual salary.
Term Life
Term insurance is "renting" coverage for a period of time, paying out a benefit amount after the policy holder's death. It's the least expensive and simplest life insurance option, as there's no cash value. The primary advantage is that the policy holder's rate remains unchanged for the duration of the term of the coverage.
A related type of coverage is Return-of-Premium insurance. Although this insurance can cost about two times as much as term, it's attractive because at the end of the term, the insurer refunds all your premiums. In other words, it's possible to have coverage for a designated period, and at the end, the net cost will be zero.
Whole Life
Whole life is a form of "permanent" life insurance that offers three guarantees:
- A death benefit
- A cash value growth rate
- A fixed premium
Although whole life insurance has the highest premiums, buyers are attracted by the death benefit and the minimal risk of policy lapse.
In addition the cash value account, which grows at a designated rate, can be treated as a liquid financial asset for a variety of uses. For example, policy holders may borrow up to 90% of the value tax free to cover the down payment on a home.
Universal Life
Universal life insurance is similar to whole life but does not offer the same guarantees; instead, its primary benefits are flexibility and affordability. For example, the death benefit, premiums, and cash value are constantly adjustable, which means universal life is a more practical investment vehicle.
Universal life requires the policy holders to carefully manage the cash value account as there are no set payments – they pay whatever and whenever they want. The insurance company takes its fees out of the cash value account, so policy holders must be diligent money managers. This "responsibility" allows insurers to charge less than whole life, but universal life is still more expensive than term insurance.
Survivorship Life
Survivorship life insurance (also known as "second-to-die" policies) is unique because it insures the lives of two people – usually a husband and wife. In this case, the death benefit isn't paid until the passing of the second insured. The primary advantages of survivorship life coverage are:
- It's often less expensive than two individual policies.
- The policy may be available even if one of the spouses is less healthy and "uninsurable" by traditional life insurance standards.
Although it's often intended to pay the estate taxes, survivorship life is also used to benefit a charity or establish wealth for future generations.
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A number of years ago, my sister called and said I've given this insurance agent your name and I want you to let him into your living room ......I could've rung her neck!...
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