Whole life insurance is a type of permanent life insurance coverage that provides a guaranteed death benefit along with guaranteed cash values. Part of each premium payment is applied to the policy’s cash value account, which grows on a tax-deferred basis (based on current federal tax laws).
- Premiums are set at a certain amount and don’t change.
- Premiums are partially determined based on the age of the insured. The younger the insured is, the less expensive the annual premium.
- The insured can borrow against cash values.
- Current federal income tax law allows for deferred tax advantages for some insurance policies.
Whole Life Insurance provides coverage for the entirety of the insured’s life, as long as the policy is in force.
Term insurance is the most basic form of life insurance. As the name would imply, a term insurance policy is a policy that is in place for a specific period or term. Usually, these policies range from 1 – 30-year term periods. If you die during the term period, your beneficiaries receive the death benefit. If you die outside the term period, there is no payout. These types of policies are the least expensive of all life insurance policies. Term insurance is often purchased when there is a large need for a limited period of time. These policies are usually convertible to a permanent policy during the term period.
A universal life insurance policy works similarly to whole life insurance which is designed to cover a person’s entire life. Unlike whole life insurance, universal life makes it possible to adjust the benefit amount up or down without needing to get a new policy. Universal life insurance may be the right choice if you need long-term financial protection. As long as premiums are paid as requested by the policy, your beneficiaries will receive the death benefit.
Indexed Universal life (IULs) are a type of universal life policy. The universal portion means that premiums are flexible and the components of the life insurance policy (death benefit, savings element and premium) can be altered throughout the contract. Universal policies are also permanent insurance policies, like a whole life policy, although there are some major differences between universal life and whole life. One difference lies in the flexibility of universal life and the inflexibility of whole life.
Within universal life policies, there is a cash component as well as an insurance component. It is the cash component that makes IULs differ from VULs (Variable Universal life) and ULs (Universal life). The cash bucket inside of an indexed universal life policy grows as a result of index performance (and the indexes are usually selected by the client or advisor each year). The indexes will usually reflect broad market indexes like the S&P 500, DJIA, etc.
Survivorship life insurance insures the lives of two people and pays the death benefit when the second person dies. It can be a valuable part of your financial strategy, particularly if you have a large estate you want to help protect. Since it pays after two people have passed on, it generally costs less than other policies.
Guaranteed Issue life insurance contains no medical underwriting, usually to cover expenses for individuals between the ages of 60-85. Death benefits usually range between $5,000 and $30,000. This has also been known as “final expense insurance.”
A buy and sell agreement is an approach used by sole proprietorships, partnerships and closed corporations to divide the business share or interest of a proprietor, partner, or shareholder. The owner of the business interest being considered has to be disabled, deceased, retired or expressed interest in selling. The buy and sell agreement requires that the business share is sold according to a predetermined formula to the company or the remaining members of the business. Before the interest of a deceased partner can be sold to the company or remaining partners, the deceased’s estate must agree to sell.
A life insurance policy that a company purchases on a key executive’s life. The company is the beneficiary of the plan and pays the insurance policy premiums.
Life insurance offered by an employer or large-scale entity (i.e. association or labor organization) to its workers or members. Group life insurance is typically offered as a piece of a larger employer or membership benefit package.
By purchasing coverage through a provider on a “wholesale” basis for its members, the coverage costs each individual worker/member much less than if they had to purchase an individual policy. Those receiving coverage may not have to pay anything “out of pocket” for policy benefits or they may elect to have their portion of the premium payment deducted from their paycheck.