Types of life insurance…there is a staggering array of options out there.
Every day I meet people whose current circumstances are completely and utterly dependant on their spouse’s income, yet they fail to carry life insurance.
Financial tragedies, such as these, are avoidable with a little planning. So let’s check out the different types of life insurance that are available.
Life Insurance is Integral to Your Family's Future Security
I ask my clients to take a cold hard look at their finances to see what would happen, should the breadwinner fail to come home one day.
In a nutshell, they would sustain unthinkable financial hardship.
So now what?
You know it’s a necessity, but there are so many different types of life insurance out there.
How do you find a policy that fits your particular circumstances?
I have been working in the life insurance industry since 2004 and have a deep understanding of the offerings currently available and am excited to share my insight with you.
…but before we get started I can’t stress enough that you should work with an independent agency, such as Huntley Wealth, as they are not tied to a particular company or outcome.
This translates into savings for you. If you work with an agent that only sells company policies you will miss out on a whole host of products that may be better suited to your circumstances.
It’s the best single piece of advice I have to give to people sorting through different types of life insurance.
The Primary Categories of Life Insurance
There are two primary categories for life insurance, term and permanent.
In my humble opinion term works best for most people, most of the time.
I am not alone in this assessment. It’s supported by financial gurus such as Suze Orman and Dave Ramsey.
The idea is, you take the difference in what you would have spent on a permanent policy and invest it in a vehicle with higher returns.
Hey don’t get me wrong. There is a time and place for whole life insurance.
For wealthy families in their 30s or 40s, whole life insurance may be worthwhile as an estate planning tool because you can create an insurance trust that can pay estate taxes out of the policy’s proceeds and then pass the trust to heirs. Is Whole Life Insurance a Good Investment? A Look at the Pros and Cons. David Weliver, Money Under 30 .
…but for most of us, term is the best bet. If you want to find out more information about this, check out our Whole Life Rebellion. It will give you some more insight into my preference for Term life insurance.
In the meantime let’s go through the different types of life insurance available!
Term Life Insurance
If you are looking to cover periods of time when the potential loss of your income or that of your spouse, will make the most impact on your family then 10 – 30 year term insurance has got you covered.
Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Wikipedia
Term Life Insurance Options
I have a great glossary of life insurance terms that will give you more information about each of these choices. Click here to check it out.
As you can see there are numerous options to consider when you are looking at the different types of life insurance offered. You should contact an independent agent so they can go through the pros and cons of each to see what fits you best:
- Level Term Insurance
- Guaranteed Term Life Insurance
- Guaranteed Level Term Life Insurance
- Decreasing Term Life Insurance
- Increasing Term Life Insurance
- Convertible Term Life Insurance
- Annual Renewable Term Life Insurance
- 10 Year Term Insurance
- 15 Year Term Insurance
- 20 Year Term Life Insurance
- 25 Year Term Life Insurance
- 30 Year Term Life Insurance
- Work Term Life 65
Permanent Life Insurance
If you are seeking lifetime coverage with a cash accumulation feature, permanent insurance may serve your needs. As mentioned above I don’t think of life insurance as an investment, per se. There are better places to make money.
Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturation. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. Wikipedia
Whole Life Insurance Options
Whole life insurance is the most expensive and rigid offering on the market. There are however a number of hybrid options.
As you can see there are many options. Whole life insurance is a very complicated product. If you think it’s for you, please be sure to speak with an independent agent. They will be able to go through all the options with you in greater detail.
- Straight Whole Life
- Level Premium Whole Life
- Continuous Premium Whole Life
- Limited Payment Whole Life
- Single Premium Whole Life
- Whole Life Joint First to Die
- Whole Life Joint Second to Die
- Whole Life Survivor
- 7 Pay, 10 Pay or 15 Pay Whole Life Insurance
- Participating Whole Life
- Non-Participating Whole Life
Universal Life Insurance Options
Universal Life Insurance is part of the permanent life insurance family of products. I happen to prefer it to whole life because it’s much more user friendly.
Universal life insurance is type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance), which is invested to provide a cash value build up. The death benefit, savings component and premiums can be reviewed and altered as a policyholder’s circumstances change. Unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his accumulated savings to help pay premiums over time. Investopedia
Universal life provides coverage for life and can be structured to act like a term policy to age 95, 100, 105, or 120, essentially stripping away the cash value component and offering you the cheapest, long term coverage available.
Here are the offerings available:
- Standard Universal Life
- Indexed Universal Life
- Equity Universal Life
- Guaranteed Universal Life
- Variable Universal Life
Once again, Universal life is a very complicated offering. Please be sure to contact an independent agent to go through all the details with you.
What's the Right Type of Life Insurance for You?
There are many types of life insurance, so selecting the policy that’s best for you really depends on how you live your life. When a client contacts us, we take the time to go through their financial circumstances.
How old are they and do they have young children? Do they have a lot of debt or a big estate? All of these details affect the final outcome.
We’ve got a great calculator to help you figure out your needs: Click Here
Whole Life Insurance Is Not an "Investment"
If you are risk averse and would like a policy that covers you for life, permanent insurance MAY be for you.
As mentioned above, I do not advocate purchasing life insurance for investment purposes. That being said, there are circumstances where permanent insurance is beneficial.
I’ve listed some of the instances that I feel permanent insurance would be suitable:
Permanent Insurance: Exceptions to the Rule
- Nominal “final expense” life insurance policies, which usually provide about $5,000 – $20,000 to cover burial expenses. These policies are typically whole life.
- Tax shelter investment opportunities because you maxed out your contributions to your 401(K) and IRA.
- You have a large estate and want to ensure your heirs have immediate cash to cover estate taxes.
- Individuals with high risk medical conditions – whole life insurance may be their only option. “Guaranteed issue” policies are built on a whole life chassis.
- For people who are exercising whole life conversions, because no other options are available due to medical circumstances. These whole life policies aren’t purchased as an investment vehicle.
- If you are a business owner or a wealthy individual looking for benefits such as asset protection, hassle-free set up of deferred compensation or supplemental executive retirement plans and return on investment and risk aren’t a factor.
Term Insurance Is Right for Most People, Most of the Time
Yep you heard me right. Term insurance works for the majority of people. In my humble opinion it’s almost always best to purchase a term policy and invest the money saved in a vehicle that will generate better returns.
Term insurance is extraordinarily flexible and you can almost alway find a policy that will suit your individual circumstances.
You can ever layer policies to fit times when you need more or less coverage. In essence you would purchase a number of different policies to cover different circumstances that would drop off as you cease to need them.
Your life insurance needs will lessen as you grow older. The most pressing time is when your children are young and you are in the prime of your career.
Laddering shorter-term policies not only is a good way to bulk up coverage during key times of your life, but it also saves on premiums, says Greg Sanders, founder of Peachtree Insurance Advisors in Marietta, Georgia. Bankrate, Climb a Life Insurance Ladder and Save
What If I Change My Mind and Want a Permanent Policy?
All of the Term insurance products we carry at Huntley Wealth have a conversion option. So should you decide that permanent insurance better suits your needs, the option is there for you to swap out your coverage.
Be sure to consult an independent life insurance agent before you make any big decisions. They can go through all of your options to find the life insurance that meets the needs of you and your family.
Term and/or Permanent Life insurance is often issued for business purposes.
The contributions of one person may be a good portion of the value in a company, so it’s very important to weigh this when considering business agreements or loans.
So let’s review some of the most common uses.
Buy Sell Life Insurance
This sort of policy is put into place for the purpose of business succession should one of the owners die.
There are 2 types:
- Cross Purchase Plan – Each owner buys a policy on the other owner(s), and
- Entity Purchase or Stock Redemption Plan – Each owner enters into an agreement to sell their portion of the business back to the company upon death.
Key Person Life Insurance
When a company buys a life insurance policy on a person who is key or vital to the survival of the business. The company is the named beneficiary.
Executive Bonus Life Insurance
When an employer purchases a policy and pays the premium for a permanent life insurance policy, which is owned by a designated executive. This is a benefit of employment.
Split Dollar Life Insurance
There are times when an employer/corporation purchases a permanent policy with an employee/shareholder and enters into a contractual arrangement that lays out how premiums will be paid. This agreement determines the manner in which the cash value and death benefits will be divided between the employer/company and the designated beneficiary of the employee/stockholder.
Life insurance benefits are a great incentive to join a company. Group life insurance is used by business owners to cover employees or specific individuals. Coverage amounts tend to be lower and employees usually pay a premium to enjoy this feature. Portability is an issue as employees cannot take their insurance with them when they leave.
Employer or Corporation Owned Life Insurance
Life insurance that is purchased and owned by a business entity on the life of one or more of its employees, in which the company is the owner. The named beneficiary can be either the company or the employee’s named beneficiary.
Life Insurance for Small Business Loans
Many lenders require life insurance coverage when they set up a small business loans to defray the risk. These policies are usually purchased as 1, 5 or 10 Year Renewable Term policies.
Stranger Owned Life Insurance (STOLI)
This is the purchase and subsequent transfer of a life insurance policy that enables someone who does not have an insurable interest (such as investors) to profit from the insured’s death. In other words, the life insurance policy is purchased as an investment vehicle rather than to assist the beneficiaries of the policyholder.
Guaranteed Issue Life Insurance
For individuals with severe medical conditions, that have been declined for life insurance.
Riders: Additional Protection for the Unforeseen
The one thing we all know is that life is unpredictable.
There are no guarantees that our later years will bring health.
It’s something not a lot of us like to think about…but what if you became disabled or contracted a terminal illness that required prolonged treatment?
As we all know illness and periods of unemployment can make or break you. Life insurance companies offer riders that may be purchased in addition to your policy that cover such dire circumstances. Let’s go over them now.
This rider can be either bought separately or included with your life insurance policy. The deal is, if you manage to survive until the end of your term, the life insurance company will reimburse you for the premiums!
Obviously this figure is returned without interest…but be sure to take a look at the fine print. Some policies will reimburse you for both the cost of the rider and the term premiums while others don’t cover the cost of the rider itself. Either way, it’s a pretty good deal.
You get the coverage you need and money back if you live until the end of term. Win, win.
Most term policies that are sold today offer a term conversion feature. Basically this means that at some point during your term you may convert your coverage to a permanent policy. On occasion some policies require you to purchase a separate rider.
Payment of premiums is an issue for anyone. What if you become completely disabled and are unable to pay your premiums? This rider will will keep the policy in force for the duration, eliminating the burden of having to worry about paying for your premiums during these times.
If you become critically ill this rider will allow you to access a lump sum payment from your life insurance benefits. The details of this financial arrangement and the requirements will be outlined in the rider.
Disability Income Rider
If you were to sustain a total disability this rider would provide you with a “regular rate of income”. Again, please be sure to read the fine print because some policies will only cover you for an accident while others only cover you for illness. In some circumstances an insurer will cover you for both.
There are also discrepancies in how companies handle the payments. Some will cover you for the period of disability, while others put a cap on time and the dollar amount.
In summary, you need to be clear with your insurance agent about your intentions when you set this rider up.
Guaranteed Insurability Rider
If you want a guarantee that you will be able to buy additional insurance without having to take a medical exam, then this is the rider for you. Most riders allow you to choose to buy additional life insurance at various stages or at specific ages. However, the premium you pay will be based on your age when you buy a new policy.
Accelerated Death Benefit Rider
If you die in an accident, this rider will provide you with an “additional death benefit” on top of the death benefits you chose for your original policy.
This figure can even double your benefits, which is also known as double indemnity. Some policies also include additional coverage if you lose your vision or have a limb amputated.
This rider will provide coverage in case your child or children die because of illness or injury. Most of these riders are available in units of $1,000 dollars worth of coverage.
They must be purchased before a certain age and are only good until a child reaches the age specified in the policy.
There are also policies which allow you to convert the rider into a permanent life insurance policy which must be done as outlined in the terms of the agreement.
Other Types of Insurance
Many of our clients ask us if we sell other types of insurance. While we specialize in life insurance, here are a few other resources you may find helpful.
Medicare Supplements – Our friends at ClearMedicareSolutions.com will help you compare medicare supplement plans. They also do medicare advantage plans and prescription drug plans.
Health Insurance – Looking for affordable health insurance? Call our associates at eHealth Insurance.
Property & Casualty or Commercial Insurance/Business/Liability Policies, call our friend, Daniel Olson at Wateridge Insurance at 858-412-8167.
Why Huntley Wealth
If you are going through the different types of life insurance to find the best possible policy for you and your family, then you are in the right place! Call the independent agents here at Huntley Wealth.
We have access to over 40 of the top life insurers in the industry and strive to give the best quality of service in the industry.
From bad hearts to missing parts, we’ve for you covered. Call Huntley Wealth right now at 877 – 443 – 9467 because we can help!
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