What Are My Life Insurance Product Options?

Choosing the right insurance product to meet your needs is very important.  Life insurance planning isn’t a “one size fits all’ process.  Determining your goals for coverage is the first step.  When it comes to life insurance product options, you have two main options: Term Life Insurance and Cash Value Life Insurance.

Term Life Insurance

Level Premium Term Life Insurance – Level term premium life insurance offers simple, cost effective protection.  Term life insurance rates have steadily declined over the years making coverage an affordable for almost anyone.

Term life insurance is used to provide coverage for a specific period of time such as 10, 15, 20, 25 or 30 years.  Term life insurance is an excellent product for those who would like coverage to last until some life milestone such as retirement, the mortgage is paid off or the kids are no longer financial dependents.  Term life insurance is a simple product.  You premiums and death benefit stay level for the entire duration of the term you choose and your beneficiaries are paid a death benefit if you die within the term.

Almost all term life insurance policies come with a Convertibility Feature that allows you to convert your term coverage to permanent coverage.  If you purchase a term policy and decide at some point that you want some permanent coverage, you can convert all or part of your term policy without proof of insurability.

You can also add valuable Riders to your term policy as well.  Some companies will allow you to add chronic illness, critical illness and child riders to your policy for an additional premium.  Learn more about Riders.

Return of Premium Term Life Insurance

Some companies also offer return of premium term life insurance (ROP).  The return of premium feature makes this product more expensive than traditional level premium term coverage.  Return of premium allows you to recapture all of the premiums that you paid into the policy at the end of the term.  For example, if you purchase a 20 year return of premium policy with an annual premium of $2,500, you would receive $50,000 from the insurance company at the end of the 20 year term.  You must keep the policy in force for the full term in order to receive 100% of your money back.  If you cancel the policy or let it lapse within the first 5 years, you will usually get nothing back.  You will get a graded percentage of premiums paid in if you hold it for a longer period, but the intent should be to hold the policy for the full duration.

Cash Value Life Insurance

Cash value life insurance is permanent coverage that offers a cash value savings component as well.   The savings component is considered your cash value and grows tax deferred within the policy. You can access the cash value in your policy on a tax-free basis in some cases.  There are several types of permanent coverage options available.

Whole Life Insurance

Whole life insurance is a simple permanent life insurance plan.  It offers fixed premiums, death benefit and cash value amounts.  Whole life policies can wither be participating or nonparticipating policies.  Participating policies allow you to receive dividends from the insurance company each year.  The dividends aren’t guaranteed, but some companies have paid a dividend every year for over 100 years.  Nonparticipating policies do not allow for dividends.  Whole life insurance is more expensive than other permanent products, but the guarantees and predictability make it worth for many.

Universal Life Insurance 

Universal life Insurance offers permanent coverage and cash value accumulation, but is a bit different than whole life.  Universal life insurance has a bit more flexibility when it comes to premiums death benefit and cash value investment options, but it does lack some of the guarantees that whole life insurance offers.  Universal life insurance offers potential for greater cash value growth than whole life in some cases as there are more investing options for cash value.  Here are some examples of universal life insurance products.

Current Assumption Universal Life

Current assumption universal life credits your cash value an annual stated interest rate declared by the insurance company.  This rate is set every year by the insurance company and is usually dependent on the company’s investment returns and the interest rate environment.  The insurance company sets a floor for the lowest rate that you can be credited.

Indexed Universal Life

Indexed Universal Life (IUL) credits cash value based on overall movements in a stock index without directly investing in stocks.  Most companies use the S&P 500 as the index for crediting.  You are allowed to participate in a percentage of the gain (participation rate) with a cap to the percentage you can be credited (cap rate). There is a floor to how much you can lose.  In most cases, the floor is 0% which means that your cash value can’t lose money if there is a down year in the market.  An IUL allows you to participate in market gains while protecting your downside.  Indexed universal life policies offer more opportunity for gains than traditional current assumption life.

Variable Universal Life

Variable universal life policies allow you to invest your cash value directly into stocks and mutual funds. You can allocate your cash value to a list of investment options such as mutual funds.  Since cash value in a variable universal life insurance is invested directly in stocks and mutual funds, it will be subject to market volatility compared to an indexed universal life or current assumption universal life policy.

Guaranteed Universal Life

While most permanent policies are designed to build cash value, guaranteed universal life is designed to offer a guaranteed lifetime death benefit for the lowest cost.  Most guaranteed universal life policies do not accumulate cash value.  Instead, they are priced to simply provide a death benefit that is guaranteed to a specific age such as 90, 95, 100, 110 or 121. If you are interested solely in guaranteed death benefit protection and not in building cash value, guaranteed universal life can be an affordable permanent coverage option.

No Medical Exam Life Insurance

There may be instances when a no medical exam policy could make sense for you.  There are several different types of no exam policies on the market. Read more about no medical exam life insurance.

What Life Insurance Option is Right for You?

Not sure what type of policy is right for you?  We can help.  We are an independent agency and we work for you – not the insurance companies.  We offer unbiased and objective advice so that you are matched with the product that best meets your goals.  Give us a call at 877-205-4172 for a free consultation or email us at info@termlifeanswers.com.

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