TYPES OF LIFE INSURANCE

There are many things you must consider when trying to find the best life insurance policy for your specific needs.

Hopefully this article will give you some understanding on the different types of life insurance and help you find the best life insurance policy for you.

Whole Life Insurance

A whole life insurance policy is a life insurance policy that pays a benefit on the death of the insured and also accumulates a cash value.

Whole Life Insurance policies have a predetermined face amount for which the insured is covered for as a death benefit. The face amount for which the insured is covered does not change over time and will never be adjusted unless otherwise stated in the policy.

Instances of a different pay out amount being awarded to the family of the insured are rare, however this does happen and is all dictated by the stipulations of the individual policy that has been written. Whole Life Insurance policies are in force until the insured passes away or until the time at which the insured reaches the age of 100.

In some cases the insurance company will cash in the life insurance policy and award the insured the funds available based off the policy face amount rather than wait until time of death to pay the funds to the beneficiaries as listed on the policy.

Many enjoy using this type of policy because of the simplistic nature of the policy type. The insured signs up for a predetermined face amount to be insured for, the premium is paid on time for life, and the insured’s family is awarded the funds stated in the face amount of the policy upon the insured’s death.

Although the most basic form of life insurance, this is a preferred mode of insurance for many individuals seeking coverage. It is also the most widespread type of life insurance when asking the general public how life insurance works.

There are some negatives associated with a Whole Life Insurance policy. One of the key negatives is that premiums on this type of policy tend to be out of some insureds' price range. Because the policy guarantees a particular face amount as a payout upon the insured’s death, the insuring entity must collect more premium to cover that obligation.

This cost is offset most by the age at which the insured takes the life insurance policy. At a younger age, the insured will pay much less of a premium because the timeframe before an anticipated payout is longer. However, if the insured takes out a Whole Life policy later in life, the premium will be much higher because the insuring entity anticipates a sooner payout and must collect more premium accordingly.

The other potential negative of an insured choosing a Whole Life Insurance policy is that the policy is generally independent from stock market growth or fluctuations. Many see this as a pro, however others view it as a missed opportunity.

For example, once the policy is taken out, if the stock market has an unexpected surge over the next twenty years while the insured is covered, the payout amount will not reap the benefits of that growth and will not scale with the market. A $50,000 face amount would still pay $50,000 to beneficiaries even if an equivalent market investment could have grown much larger.

Term Life Insurance

Term Life Insurance is a type of life insurance that pays a predetermined face amount to the insured’s beneficiary in the event of the death of the insured during a specific, predetermined amount of time.

Term Life Insurance is another type of basic life insurance that is easy to understand. The predominant purpose of this type of life insurance is to protect something for the insured for some amount of time, but not to provide security for life.

An example of this may be the insured has a child that they are saving money for to send to college. This may be an attainable goal, however the insured would like an extra precaution to help out in the event something may happen before they finish acquiring the necessary funds to meet their goal. This is where a Term Life Insurance policy will come into play and fill that specific role.

The largest benefit to having Term Life Insurance is the face amount that can be acquired for the amount the insured will have to expend to receive the coverage. Compared to most other forms of life insurance, Term Life can often be acquired for a fraction of the cost of comparable types for the same face amount.

In some cases the premium amount paid by the insured can be as much as 60% less for the same face amount on a different type of policy. This cost advantage is possible because of the time limit imposed on a Term Life policy; generally, if the insured lives past the predetermined term, there will be no coverage available.

Because the insurer has a high likelihood of not actually having to pay out the face amount on the policy, they are able to charge much less for the coverage as a whole.

Some insurers offer a Permanent Term Life Insurance policy that will stay in force as long as the premiums are paid for the remainder of the insured’s lifespan; however, these policies typically carry marginally higher premiums. Once the original term of a Term Life policy has expired, any renewed face amount may be lower than the original. These features, along with Term Life’s lower cost and simplicity, make it one of the most commonly purchased life insurance products in the United States.

Universal Life Insurance

Universal Life Insurance is a type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element similar to whole life insurance, which is invested to provide a cash value within the life insurance policy itself.

Universal Life Insurance has many moving parts, which can also mean greater flexibility. Because of its structure, premiums can be lower than some other permanent policies.

There is less short-term risk for the insurer, which can allow for lower premiums and more flexible features. Unlike Term Life, Universal Life policies are typically permanent and do not expire at a fixed cutoff date for the death benefit.

Finally the Universal Life Insurance policy offers a benefit of accumulating cash value just as a traditional whole life policy does over time. The cash value of a life insurance policy is the amount of money that has build up in the policy due to the premiums being paid by the insured.

This is important in the particular instance of an insured “cashing out” a life insurance policy. This means the insured will diminish the face amount of the policy by a certain amount of money in order to take those funds and do with them what they please, or cancel the entire policy altogether and take the amount of money that has built up over the years in the policy.

All of these factors combine to make a very solid life insurance product in the Universal Life Insurance policy. The predominant negative to most individuals acquiring and being comfortable with the Universal Life Insurance product is their ability to understand all of the workings of the policy itself. Because the Universal Life Insurance product is not as straight forwards as the Whole Life Insurance product or the Term Life Insurance product, many simply veer away from it to more simplified means of acquiring coverage.

Variable Universal Life Insurance

Variable Universal Life Insurance is very similar to Universal Life Insurance in that it is a permanent life insurance policy and that it builds up cash value within the policy as time goes on.

The key difference between Universal Life and Variable Universal Life is that the latter holds a cash value account invested in sub-accounts (similar to mutual funds) available only within the policy. That invested cash value provides the potential for higher returns if the underlying investments perform well.

This structure can preserve many traditional benefits of a Universal Life policy while offering investment upside, which is attractive to some buyers. However, the added complexity and market exposure make Variable Universal Life policies less appealing to those who prefer simpler coverage.

The other side of that potential is downside risk: the cash value account can lose value if the investments perform poorly. Some insurers include clauses that limit exposure, but practices vary by company.

For policy-specific details and risk mitigation options, check with your broker or insurance professional before purchasing a Variable Universal Life policy.

We are Amerus Financial Group located in Lakeland Fl, our job is to provide you with the best health insurance for your specific needs.

We hope you have benefited from this article and if you would like to learn more about our company you can contact us by dialing 888-441-7891 or emailing us at support@amerusfinancial.com and of course you can find us at Amerus Financial Contact.