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Life Insurance

There are 5 different types of life insurance

  • Whole Life
  • Universal Life Insurance
  • Variable Life Insurance
  • Variable Universal Life Insurance
  • Term Life Insurance

Whole Life – Part of the premium is used to provide death benefits to the beneficiary, and the remainder is available to earn interest in the cash value account. Because of the additional cash value, whole life is more expensive than plans that provide for death benefits only.

  • Premium payments remain fixed
  • Face amount (death benefit) on the policy remains fixed
  • Provides for cash value (general savings account)
  • If an investor misses a payment, the policy will be cancelled. The policy holder will receive the cash value.
  • Policyholders are allowed to borrow up to 90% of the cash value.
    Risk factor – Inflation

UNIVERSAL LIFE INSURANCE – Provides more flexibility than a whole life policy.

  • There is NO FIXED PREMIUM. Policyholders are permitted to deposit more than the required amount.
  • The face value (death benefit) of the account can increase. The more the investor deposits, the higher the death benefit.
  • Provides for “cash value” (general savings account)
  • If the investor misses a payment, the policy will remain in effect as long as there is enough cash value in the account to cover the monthly mortality (death protection) and expense costs. If extra money has been deposited in previous months, the policy will continue.

VARIABLE LIFE INSURANCE – life insurance that provides a separate account of investments chosen by each policyholder

  • Fixed premium
  • Face amount (death benefit) on policy is fixed as to the minimum, but not the maximum. The death benefit may increase based on the performance of the separate account compared to the AIR.
  • May or may not have cash value depending upon the performance of the separate account.
  • Policyholders may borrow up to 75% of the cash value.
  • If money is borrowed against the account, and the account goes into a negative cash value, the investor must deposit enough cash to bring it to a positive balance within31 days or the policy will be terminated.
  • Policyholder chooses how the money is invested (common stock, bonds, money market accounts, etc.)
  • Policyholder may exchange the Variable Life Insurance contract to a fixed whole life policy within the first two years without having to re-qualify (Federal Law).
    Reduces inflation risk

VARIABLE UNIVERSAL LIFE INSURANCE – a life insurance policy that includes characteristics of variable and universal life insurance policies.

  • A variable life insurance product with no fixed premium. Universal policies have no fixed premium. Sometimes, this policy is called a FLEXIBLE PREMIUM VARIABLE LIFE POLICY.
  • The investor can choose the investments for the separate account.
  • The minimum death benefit is guaranteed.
  • The cash value is not guaranteed.
    Reduces inflation risk

TERM LIFE INSURANCE

  • A type of life insurance policy that provides for death benefit only.

NOTE: The term life insurance policy has no cash value. Therefore, term life is normally the cheapest life insurance to purchase.

NOTE: AM Best evaluates insurance companies that offer annuities and life insurance.