Life Insurance Types
TERM LIFE INSURANCE
Term life is a great choice for your insurance needs if you only require coverage for a specified amount of time. Maybe you only need it until your mortgage is paid off or until your kids graduate from college. This temporary insurance (usually offered for 10, 15, 20 or 30 years), expires at the end of the term, much like health insurance, car insurance, and property insurance.
In most cases, term policies can be converted to permanent coverage for a period specified in the life insurance contract, without evidence of insurability. We would be happy to discuss the variety of insurance options that are available to you and the type of policy that would best suit your needs.
PERMANENT LIFE INSURANCE
Permanent insurance accumulates a cash value or internal cash reserve that can be used for a variety purposes, including paying future premiums and taking income.
Whole Life is a type of permanent insurance where the cash values typically grow based on a fluctuating dividend rate determined by the insurance carrier. The dividend, which can create large cash values, plus a level of death benefit guarantees, is what distinguishes Whole Life from other types of permanent life policies, such as Universal Life, Indexed Universal Life, and Variable Life. Whole Life policies can last for life if designed and monitored properly, and are usually transferable. Universal Life accumulates a cash value that grows based on an interest rate declared by insurance carrier (or by market performance if it is Variable Life).
Universal Life is appealing primarily because of its flexibility and low-cost. There are a variety of Universal Life products on the market, all with unique features and riders that can be structured to meet specific goals.
Indexed Universal Life is becoming increasingly popular as it offers policyholders the opportunity to participate in the upside of a market index, such as the S&P 500, while minimizing the downside. Contact us to learn more about this highly customizable type of policy.
THE INTERNAL RATE OF RETURN OF LIFE INSURANCE
The basic premise of life insurance is the idea of leveraging a relatively small amount of money into a policy in order to achieve a substantial return, which is the death benefit. If someone pays their insurance premiums on time every year, it is not uncommon to see an after-tax internal rate of return of between 8% and 10% at life expectancy. This leverage opportunity presented by life insurance often goes unnoticed as people focus on the end result of the coverage or the death benefit. However, compared with other investment vehicles, especially those that are not as tax-efficient, life insurance can offer a competitive return.