For many years people have used life insurance as the foundation for their financial protection. This foundation can be built to support strategies such as income replacement, educational funding, mortgage protection, and wealth transfer to name a few. With various types, coverage amounts, and riders, today’s policy can be tailored to meet specific needs. Business owners can use life insurance to protect against the financial burden from the loss of a key employee or to provide the funding for a buy/sell agreement. Below are three types of life insurance that are available:
Term Life – Term may be the most popular due to its low cost and simplicity. These policies are generally good for 10, 15, 20, or 30 years and pay a death benefit if you die within that period. Term life provides for the ability to purchase a large amount of coverage that is cost effective since it only lasts for a specified amount of time. Term is typically the most effective of all life insurance types.
Think of Maria, a 25 year old nurse that just bought her very first house with a 30 year mortgage. She also has her wedding planned for next year and hopes to have two children by the time she is 30. Term life would be a great solution for Maria to cover her immediate financial needs – loss of income, paying off the mortgage, and providing funds to pay for college.
Whole Life – As its name implies, whole life insurance is intended to last for the whole, or entire, life of the insured. This provides a permanent benefit whether the insured is only weeks old or 70 at the time of issue. Traditional whole life policies will also accumulate a cash value that will grow over time. This value grows tax deferred and is an asset of the policy owner. The cash value can be borrowed as a loan against the policy. The premiums for whole life remain level, and some policies even offer an accelerated premium period so that the policy can be paid in full over a short period of time. An income-tax free death benefit will be paid to beneficiary. The premiums for whole life are greater than term due to a combination of the length of coverage and guaranteed cash value. While it can serve many needs, whole life is a great solution to provide the funds needed for final expenses.
Universal Life – Universal policies, or UL as they are often referred to, can be tailored to meet the needs of the insured. Unlike term and whole life policies that offer fixed benefits, UL’s offer flexibility in various parts of the policy – the guaranteed benefit, length of policy, and premiums paid. As with the other term and whole life, the death benefit of a UL is paid income tax free. Cash accumulation is possible in this type of policy, but unlike whole life it is not guaranteed. Universal life is typically structured to meet one of three needs – permanent death benefit, cash accumulation, or a combination of both. With the help of a trusted agent, you can see if a Universal policy provides the best solution for you and the needs of those you are protecting.
As your personal situations change (i.e., marriage, birth of a child or job promotion), so will your life insurance needs. Care should be taken to ensure this product is suitable for your long-term life insurance needs. You should weigh any associated costs before making a purchase. Life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, and has additional charges for riders that customize a policy to fit your individual needs.
Guarantees and protections are subject to the claims paying ability of the issuing insurance company.
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