Life

Why Life Insurance?

Modern Life Insurance policies come in a variety of designs, prices, and purposes.

Some of the purposes for life insurance:

  • Retirement Income
  • Survivor Income
  • Final Expenses
  • Automatic Completion of savings plans
  • Charitable Giving
  • Debt Retirement
  • Estate Tax Payments
  • Business: Cross Purchase of ownership shares
  • Business: “Profit Insurance” to help with business cash flow losses on the death of a key revenue-generating employee
  • Immediate, low-cost creation of an estate before other assets can be acquired
  • many other purposes

Types of Life Insurance:

  • Term Life.  The oldest type of Life Insurance.  Upon underwriting approval, a policy is issued, and then is in force for a determined length of time, or term period.  Upon expiration of the original term, the policy may be renewed (if eligible) for another term, almost always at a higher rate.  At some point, the policy expires without being renewed or reissued.  Much as in car insurance or homeowner insurance, there is no policyholder equity in the policy.  Term policies are significantly less expensive at younger ages than other types of policies that build cash value, but are often a good choice to get death benefit protection when their are limited funds to get adequate amounts of life insurance in place.   Some carriers offer “return of premium” term life insurance so that at least some of the premiums could be returned during the lifetime of the insured person, but those “return of premium” policies can cost significantly more than similar Term Life policies that do not offer the “return of premium” feature.  It is interesting to note that Term Life policies will certainly pay claims (I’ve delivered some death benefit checks to beneficiaries of people who had been insured by Term Life), but are significantly less likely to actually pay a death claim, as compared to other types of Life Insurance. Reason? Term Life is often dropped when the premium costs ultimately and eventually increase.  Even so, sometimes Term Life is the best choice, due to its lower initial costs to the insured.
  • Whole Life  was invented to avoid the problems that resulted from the expiration of a term life policy, and the insured person then had health problems that would price the underwriting risk / cost of getting another policy.  Other problems solved with Whole Life include:  premiums (though much higher than Term Life especially at younger ages) are guaranteed to never increase.  Many Whole Life policies will pay the entire death benefit, or ‘endow’ when the insured person, still living, attains a specified age.  That means that if you take out a Whole Life policy for $100,000, and are alive at the endowment age, the insurance company will then pay you $100,000.    With most Whole Life policies, funds are available for withdrawal or policy loans that could be tax free under current law, following the first few years of the policy.  Historical note: during the Great Depression, many farmers and business owners survived those times, and kept their farms, ranches, and businesses because they could withdraw money from their Whole Life insurance policies.
  • Universal Life was invented to give flexibility to those who could change the amount of premium that would be paid, the amount of insurance to be in force, the design of how the cash values in the policy would be applied, and much more.  The original name for this type of policy is Flexible Premium Adjustable Life Insurance.

There are other types of life insurance, such as accident only, group term, travel insurance, and more.

Questions?  Contact me for no-obligation answers.

“Today’s Solutions … for a Bright Tomorrow”  since 1982

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