As the New Year kicks off, many Americans, for various reasons that may include debt, marriage and children, are contemplating the different life insurance types available for purchase to protect their loved ones. To answer some of the questions that may come up, we are going to provide you with a primer on the life insurance types available in 2016 to help you decide.
Far too many people are daunted by the process or overestimate the cost of purchasing life insurance.
That should never discourage you from making inquiries and protecting your family with a policy that covers the worst possible scenarios. Many Americans who do own some form of life insurance are underinsured! It’s important to make an informed decision.
Quick Guide to the Life Insurance Types Available in 2016
- Reasons to Use an Independent Agent
- Life Insurance Types
- Term Life Insurance
- Permanent Life Insurance
- Whole Life Insurance
- Universal Life Insurance
- No-Exam Life Insurance
- Life Insurance Riders
Knowing the details of the different life insurance types available in 2016 and what each option will cost, is the first step to fully understanding your needs. Price may vary dramatically. This is why you should always use the services of an independent life insurance agent. Agents at Huntley Wealth are here to help you with the selection and buying process.
An independent agent can properly evaluate your needs both now and down the road. Independent agents know which life insurance companies in 2016 offer the most affordable and suitable policy for YOUR needs, because “one size does not fit all” when it comes to buying life insurance.
There are the 3 basic life insurance types:
• Term Life Insurance
• Permanent Life Insurance
• No-Exam Life Insurance
Most people know or have heard of Term Life Insurance. It’s the most basic and affordable because it pays death benefits only.
Essentially, you have to decide how much coverage you need for death benefits which can range from $100,000 (or lower) to $5 million plus. Uses for death benefits include:
• Income Replacement
• Personal Debt Repayment
• Business Purposes
• Mortgage or Rent Payment
• Funeral and Burial Expenses
The second thing you need to decide is how long you will need the life insurance for. Terms may be bought for as little as 1 year to cover business loans for example, or you may purchase a term for 5, 10, 15, 20, 25 or 30 years.
A few companies will even sell policies which are age specific, such age 55 or 65 for example.
There is one catch. If your policy is about to expire, and you need to renew it, the premium will cost you a lot more than when you originally bought it. Re-evaluation is based on your current age and health. Luckily, there are term policies which cover these issues.
The majority of Americans should consider Term over Permanent life insurance as it is the most suitable for the majority of people who need life insurance. Most people would be better off buying Term and investing the money they would save making payments on a permanent life insurance policy.
One thing many people may not know about Term insurance is that there are actually 5 different types of Term policies to choose from:
- Level Term Insurance – This is the most common type of life insurance policy people are buying in 2016. This simply means that your death benefits remain the same throughout the life of the policy and the premiums you pay are generally fixed. Make sure you enquire about this as some insurers do sell policies where premiums may increase.
- Decreasing Term Life Insurance – With this type of policy, the death benefits decrease at various and designated time increments throughout the life of the policy, but the premiums you pay remain the same. Many people use this type of policy to cover their mortgage.
- Increasing Term Life Insurance – Very few companies offer these policies but they may be beneficial for young families on a tight budget. With this policy, the death benefits “increase” at various time increments. Generally, you would also see a corresponding increase in your premiums.
- Convertible Term Life Insurance – This is a feature which may be convenient down the road when you need to renew your policy and your health has declined. The conversion feature allows you to convert to a Permanent policy such as Whole Life or Universal Life without having to take a medical exam so you can continue with your coverage. Keep in mind that you must decide to convert before the date specified which may vary from insurer to insurer.
- Renewable Term Life Insurance – This is a form of term insurance which allows you to automatically renew the term you bought on your policy before it expires. You can do so regardless of your health, but you will be paying a higher premium as you will be rated according to your current age when you renew.
It is vital that you choose adequate death benefits and the length of term carefully. You should look past your current situation to take into account the cost of inflation and what your earning power and future debts might look like in 20 or 30 years.
Permanent life insurance is much more expensive than term insurance for the following reasons:
• Coverage is for life, eliminating the need to renew the policy
• Provides death benefits
• Cash value accumulation feature which builds up over the life of the policy
• Allows you to borrow against the policy
• Allows you to surrender the policy
Permanent life insurance is more expensive because of the cash value accumulation feature and can easily cost 10 times
more than what you would pay for a term policy. The cash value accumulation feature allows the insurer to take a portion of the premium for investment purposes, so you earn interest which builds over time.
There are also a number of administrative fees built into the premiums because of the cash value accumulation feature. Most of your premiums in the first 10 – 15 years are used to cover the death benefits and fees. It actually takes quite awhile before you really enjoy the benefits of cash value accumulation.
Permanent policies are more suitable for those with estates or who are in the higher income brackets, rather than the average American.
There are 2 basic types of Permanent Life Insurance;
• Whole Life Insurance
• Universal Life Insurance
There are a number of hybrid variations of Whole life insurance and they vary from insurer to insurer. Whole life is considered the most rigid type of permanent life insurance, as the insured has few or no options when it comes to altering death benefits, premiums or the cash value accumulation feature. Most policies simply lock you in for the duration.
Some of the Whole policy options you may consider are:
• Straight Whole Life
• Level Premium Whole Life
• Continuous Premium Whole Life
• Whole Life Joint
• Whole Life Survivor
Whole Life also comes as:
• Participating Whole Life – Where you are provided with a few select limited options regarding the investment portion
• Non-Participating Whole Life – No options are provided.
As this product is quite complicated, you should consult an experienced independent life insurance agent to discuss the pros and cons of each option.
• How premiums are paid
• The death benefits, and
• How the investment portion is managed
Like Whole Life, there are also many hybrid forms of this product which vary from insurer to insurer.
There are generally 3 types of Universal life including:
• Standard Universal Life
• Indexed Universal Life
• Variable Universal Life
As this product is somewhat complicated, it is best discussed with an experienced independent life insurance agent to consider the pros and cons of each product.
No-exam life insurance is convenient but can cost as much as 3 times more than what your would pay for an equivalent Term policy which does require an exam.
Although you might be able to avoid having to take a medical exam, many insurers will require a brief phone questionnaire, or might review the Medical or Rx database before they will approve your application.
Costs of some life policies soar if you try to buy it without a checkup. As when applying for bank loans, employment or any membership, purchasing life insurance requires the individual to meet certain requirements. Certain types of life coverage may require you have perfect health at the policy’s issuance to ensure you’re not trying to cash in on your imminent sickness or death. No Exam Insurance Realities, Jeff Rose, Nasdaq
If you are young and healthy, you should avoid these policies as they are best suited for those that:
• Need life insurance quickly to cover a business loan
• Have health issues
The maximum amount of death benefits offered by insurers are generally much lower than what you could get for term policies, although there is one insurer which offers no-medical benefits up to $1 million dollars. Typically, maximum death benefits range from $50,000 – $350,000.
There are also 6 variations of these policies, and they are best suited for specific circumstances and particular individual needs. The types of available no-exam policies include:
• Simplified Issue Term Life Insurance
• Simplified Issue Universal Life (UL)
• Graded Benefit Whole Life
• Rapid Decision Senior Whole Life
• Level Death Benefit Whole Life
• Guaranteed Issue or “GI” policies
These are all different types of no-exam policies and the cost and coverage can vary significantly. Always discuss your needs and situation with an independent agent before you buy, as those companies which advertise on the television or online are not especially clear about they are selling.
Any type of life insurance policy you buy may be supplemented with additional or more comprehensive coverage through purchasing a life insurance rider. These are a separate premium placed on top of what you would pay for a life insurance policy. They also vary from insurer to insurer so choose carefully.
Some of the riders available include:
• Return of Premium (for term policies only)
• Waiver of Premium
• Critical Illness Rider
• Disability Income Rider
• Guaranteed Insurability Rider
• Accelerated Death Rider
• Accidental Death Benefit Rider
• Child Protection Rider
How to Buy Life Insurance 2016
We cannot stress enough that life insurance is a long term financial investment. Choosing the right product at the most affordable possible price is best achieved through using the services of an independent life insurance agent, such as those at Huntley Wealth.
Independent agents have access to multiple companies. We know which insurers are the most lenient when it comes to particular health issues.
The companies who offered the best deals for diabetics or people with a history of cancer or stroke, for example in 2014 and 2015, change seemingly every year, so you want to be sure to let an agent compare companies in 2016 and shop for the best rates for you.
Call us today at 877 – 443 – 9467 if you think you need life insurance because we can help!
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