While there are some basics that everyone can follow, each person’s situation can be unique and requires an expert’s guidance with your best interest at heart. Finding an experienced insurance broker that represents you and offers many products is the best course. Work with an insurance professional who understands your goals and can guide you toward the correct type of policy and appropriately structured to ensure you have the right amount of coverage and benefits mitigating the risks of life.
A term life insurance policy offers affordable, straightforward protection that lasts for a defined period or term. You can typically get a term for a set number of year(s) which can be anywhere between 1 to 30 years.
The vast majority of term life insurance sold today is level term insurance (10, 15, 20, or 30 year level periods).
There are other types of term insurance, but they are mainly fading into the past and not entirely relevant anymore. Other types are decreasing terms marketed as Mortgage Protection as the death benefit decreases, which should coincide with reducing your mortgage. Additionally, another type is yearly or annual renewable term insurance or ART. These are 1 year policies that are temporary coverage but the cost typically goes up annually as you age.
Term life insurance is the most common type of insurance, and most financial gurus recommend that people get a low-cost term policy with 10 to 12 times their annual income of coverage. Obviously, this depends on your specific situation, and that type of generalization is not always applicable.
In most cases, at the end of the term, the life insurance company will allow you to continue the same coverage but at a significantly increased cost.
One major thing to remember with term life insurance is that there is no cash value savings element. One slight caveat is ROP.
Some term policies, called Return of Premium or ROP, will refund your premium payments at the end of the term. This is a great option to ensure you get your money back if you don’t use the death benefit within the term period.
Note, this is not the same as a cash value, but it does give you an option to get money back.
A Whole Life Insurance policy offers predictable lifelong protection with the most guarantees, including a fixed premium and death benefit.
If you are looking for guarantees, none compares with Whole Life. In addition to its promise to pay a death benefit, it also offers a very stable and safe savings plan if the premium has been paid. There are all sorts of opinions on the internet about whether whole life insurance is any good, whether it is worth it, or just a total ripoff.
From our personal experience, we can definitively say that it’s not a ripoff. Policy design, setup, and service are essential for the policy owner to have a satisfactory outcome, particularly when looking at the savings component, formally called the cash value. That being said, it should be used appropriately according to your individual needs and circumstances.
Guarantees are a crucial component for a whole life policy. There are three basic guarantees:
There are many specific details that we can get into; however, you can research on your own or call us to answer any questions you have and explain the different options that are available to you.
Universal life insurance, or UL, offers flexible protection that can last your lifetime and include various cash accumulation options.
Fundamentally, UL’s are a term insurance policy with a savings component attached. Just like all other types of life insurance, there is a cost to insure your life. In a UL policy, this is known as the cost of insurance and disclosed to you. At its core, you must pay enough premium to cover the cost of insurance throughout the policy’s life to keep the death benefit in force for the amount you purchased.
There are other options to cover the cost of insurance. For example, if the Cash Value (aka savings account) has funds, the policy expenses or costs can be covered in whole or in part by the cash value; this goes for all permanent insurance policies with a cash value element. UL insurance is very flexible in that there is no set premium. You have to ensure that you cover the cost of insurance and perhaps a few other expenses to keep the death benefit in force.
Your cash value will have interest credited to it at least annually in most cases. How much and what the interest is based upon, can vary by policy. We go into some detail below but can answer any questions you have when you reach out to us.
Back to the basics of universal life: the term portion of the policy works very much like yearly renewable term insurance as the cost increases a bit each year. It starts very inexpensive and moves up as you age; this could become a problem for some people. Adequately funding your policy is critical to its success.
However, as you will read from us or hear from us repeatedly, this only becomes an issue when the policy isn’t correctly designed, implemented, and managed. Do not let this deter you from exploring universal life. There is a great deal of misinformation out there that intimidates people into ignoring it as an option.
Our agents are experts in policy design, specifically for maximum cash value. The most significant factor and what we teach all of our clients is to get a policy that is appropriately structured and maximum funded as early as possible to ensure there is plenty of cash value to cover all future costs of insurance and have plenty of tax-free income for the future.
An Indexed Universal Life policy or IUL is a universal life policy that has the option to indirectly invest the cash value by being tied to an Index fund such as the S&P 500. These IUL policies typically have a 0% floor which means your cash value savings will not lose money if the index is negative for the year.
Indexing is a great strategy to ensure your cash value savings is growing at higher interest rates of return without actually being invested in the stock market, and thus, you can capitalize on the higher rate of return without the fear of losing any capital in down years.
A variable universal life insurance policy typically includes different investment options for your cash value, as well as flexibility in your death benefit. A variable policy gives you the opportunity of investing your cash value savings directly in the stock market index funds.
These policies are investing directly and thus come with more risk. However, it gives you the option of earning the maximum return rate that the market is reaching for that year.
Variable policies require additional licensing requirements, so you will need to work with an agent specializing in these types of policies; this is the same for variable annuities.
It all depends on your specific situation and your goals. A general rule of thumb is to have a term policy that is 10-12 times your annual income. You can also supplement this with a smaller permanent policy to ensure you have a cash value savings element to supplement your retirement with Tax-Free income. Working with a specialist who knows how to properly structure your policy for maximum cash value is essential.
Each of the main types of life insurance offers a unique purpose. Do not be distracted by self-serving voices which say one type is better than others.
Whole life insurance is excellent for those with a more significant amount of discretionary income, a long-time horizon, and the desire for safety with strong guarantees.
Universal life is infinitely flexible and can offer better cash value returns over time if designed, executed, and managed properly.
Term insurance is the all-purpose player of the bunch. It offers inexpensive death benefit protection for a finite time. It works well for a primary breadwinner that needs to make sure their income is replaced for their family when they die.
Every type works well and should be considered when looking to purchase a new life insurance policy. Choose the right one for your specific needs and goals. We are here when you are ready to discuss the appropriately structured policy.