Types of Life Insurance
Provides death benefit coverage for a specified time period. Premiums may increase annually (annual renewable term) or remain level for a period of time (e.g. 10 years) before increasing. Typically, Term Insurance provides the lowest initial cost and the highest long term cost for coverage. Policies may be converted to a permanent insurance policy for a limited period of time from as little as two years to possibly as late as age 65. Term Insurance does not create any cash value. Generally, it is purchased for a short-term need and not as a permanent solution.
Offers permanent death benefit coverage characterized by strong guarantees and premium payments until the death of the insured. Whole Life typically sacrifices premium flexibility for the guarantees found in the contract. If premiums are paid as scheduled, the death benefit is guaranteed. Any deviation can result in the loss of the death benefit guarantee. Premiums for Whole Life are normally the most expensive compared to the other policy types.
Provides permanent death benefit coverage recognized for its premium flexibility and cash value accumulation. The amount and timing of premium payments is flexible as long as policy cash values are sufficient to pay for the cost of insurance coverage. The typical death benefits options available in a Universal Life policy include a level death benefit or an increasing death benefit. The increasing death benefit is usually a level amount plus either an amount equal to the cash value of the policy or an amount equal to the cumulative premium payments. When initially introduced, Universal Life insurance did not offer guarantees comparable to Whole Life contracts; however, in recent years many policies have begun to offer competitive death benefit guarantees if a minimum premium amount is satisfied. In addition, many carriers have developed an Indexed Universal Life product, which attempts to manage the risk by capping both the minimum and maximum amounts that can be earned.
Variable Universal Life
Supplies permanent death benefit coverage where the policy owner directs the investment of policy cash values into various sub-accounts. Variable Universal Life insurance maintains the core characteristics of Universal Life, yet shifts the investment risk and control from the life insurance carrier to the policy owner. The policy potentially allows for greater cash value accumulation but with a significantly higher risk level than other types of cash value life insurance. Variable Universal Life is a long-term investment and is normally suitable for clients with investment experience, a higher level of risk tolerance, and the financial resources to withstand investment fluctuations and the possible loss of all or a portion of the investment.
Single Life Coverage
Provides death benefit protection on the life of one insured. The proceeds of this policy are payable at the death of the insured. Single Life Coverage is used for a variety of concepts such as willing your benefits to charities and as a tax-free option for transferring wealth.
Joint Life Coverage
Also known as “Second-to-Die” or “Survivorship” life insurance, this policy provides death benefit protection on two individuals. Policy proceeds are payable to the survivor at the death of the first insured. This coverage is typically used in an estate planning context where the use of the unlimited marital deduction allows estate tax to be avoided at the first death with the tax paid at the second death.