All About Life Insurance
Most people understand the need for life insurance but get confused when they talk to an insurance agent. Competition is life insurance market is fierce and that has led to some of the most complicated and misleading life insurance products. Life insurance is important to protect your family after your death, so make sure you are comfortable with the language and terms that life insurance industry has used for years. We have compiled a list of common definitions and terms that you should be aware of before shopping or even evaluating a life insurance product for yourself.
Term Life Policy: As you can tell, term life is probably the most simple form of life insurance available. You buy your policy for a certain period and your premium stays fixed for the duration. It usually provides affordable protection, often with a guaranteed premium, for some period of time. If the insured should die while the policy is in force, the face amount is paid to the named beneficiary. Once your term expires, You have the option to renew the coverage at a premium that is usually higher than the previous one. Term life is a very popular product due to the fact that is is affordable and you don't have to do lot of prep work(Likfe multiple medical exams) to get a policy. However, term life also has the disadvantage of not providing any value once your coverage expires. Most insurance companies sell term products with coverage periods such as 5-year, 10-year, 20-year etc. There is also a product known as increasing premium life insurance policy that offers you coverage until you reach age 80 or higher. Tricky part about this products is that you have to renew your policy every year with higher premiums.On the other hand, it offers a single policy for life and you don't have to shop for a policy every time your coverage expires.
Whole Life Policy: Name says it all. This product is also known as permanent life insurance. A whole Life Insurance policy protects you for your whole life, from the day you purchase the policy until you die, as long as you pay the premiums. Whole life insurance policy can be customized to meet your requirements. You can add riders to meet your needs. You can decide how long you pay premiums and how you want to pay it. You can coordinate the paid–up date of your policy precisely with your individual financial goals and timetable, while enjoying all the traditional features of whole life, including lifetime life insurance protection and tax–deferred cash value accumulation.
Cash value is a very important feature of a whole life insurance policy that you should pay close attention to. It is a form of insurance that accumulates cash value and is eligible to receive dividends. their are different version of whole life policy in the market place. some polices start out with a lower fixed premium for first five years and then premium increases in year six and remains at that level for as long as you own the policy. there are some policies where premium will continue to go up with the age of the policy. In the recent years, there have been some innovative changes to Whole life insurance business. Today's Whole life insurance can help you protect your mortgage payments as benefit can be used to help pay off mortgages and other outstanding debts in the event of a premature death. It can also supplement your retirement income by policy loans or surrenders. However, you must be aware that any kind of loan on a life insurance policy will reduce the death benefit if there is a loan amount outstanding at the time of death.
Most of the time, a whole life insurance policy begins to accumulate cash value. The amount of cash value in your policy usually increases every year. Cash values build on a tax-deferred basis.This is your money can can be used to help purchase a home, fund a child's education, supplement retirement income, or for any other purpose. You may also choose to leave it in the policy and allow it to grow. The policy's cash value may be accessed through policy loans or withdrawals which will reduce the death benefit.
A whole life policy can earn dividends, that you can reinvest in your policy and continue to enjoy tax deferred growth. You can also use your dividends to reduce the premium you pay to keep the policy in effect.
When you die, the company will pay your beneficiaries the death benefit, usually the face amount of the policy plus any dividend. This money is generally received by the beneficiaries free from federal income tax.
Universal Life Policy: Universal Life insurance policy is the most sophisticated type of life insurance policy. Universal life insurance provides permanent life insurance protection with guaranteed coverage and and access to cash values that grow tax-deferred at competitive interest rates.
Universal life products give you the flexibility to choose the amount of protection that best suits your family or business. It allows you to increase or decrease coverage as insurance needs change. However, you may not decrease your coverage below the required minimum. A decrease may result in a surrender charge being applied against the policy's cash value. Universal life insurance allows you to control the amount and frequency of payments. You have the option to increase the premium or make lump sum contributions, subject to limits as specified in the policy. The extra dollars grow tax-deferred, and may increase the cash and death benefit values. On the other hand, in a temporary cash crunch, you can pay less than the scheduled premium and let the policy's accumulated cash value pay the remainder of the monthly charges. Remember, this is adjustable life insurance that allows flexible premium payments, pays the life insurance benefit if the insured dies before the maturity date, and pays the cash value if the insured is living at the maturity date.
One of the best feature of
Universal life policy is the level of customization and features to fit your lifestyle. You can add riders to protect your family and ability to pay premiums during disability, and increase the benefit to your family if you should die accidentally. You can also pick a Variable Universal Life Insurance policy that allows you the flexibility of traditional universal life insurance and the investment flexibility and risks of variable life insurance. These products are considered securities because the policy owner assumes investment risk associated with the variable investment divisions, whose performance will fluctuate with market conditions. A Variable Universal life insurance policy is a great choice for people looking for a safe investment vehicle with reasonable returns and life insurance protection at the same time. For example, New York Life offers a universal life policy that has consistently provided 7-9% return on the investment.
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Permanent protection that can never be canceled as long as you pay your premiums. You also have flexibility to pay premium either monthly or annually.