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What is Life Insurance?
The purpose of life insurance is to provide financial protection in the event of an insured's death, or in some cases it can be treated as an asset and/or as a retirement income. There are two main categories for life insurance policies: temporary or permanent protection.
Terms to know:
- Premium - payment made to the insurer to maintain the policy (ie. monthly insurance payments)
- Cash Value - the amount to which the policy owner is entitled to if the policy is surrendered before maturity (ie. the payout of death benefit when insured dies)
- Return of Premium (ROP) - is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid; paid only if death occurs within a specific time or if the insured outlives the policy term.
Temporary
Term Life - is temporary protection for a specified number of years; term life has no cash value that can be borrowed while the insured is alive.
Decreasing Term Life - a temporary coverage to cover the lifestyle and upbringing of children i.e. college tuition, or business partners, etc.
Increasing Term Life - in case one wants extra protection to increase converage by a certain percentage every year. The premium is higher but the coverage is guaranteed. This is not a standard coverage.
Mortgage Protection and Coverage - in case the property owner dies, the mortage protection pays off the property in full.
Annually Renewable Term (ART) - provides a level death benefit for a term of one year, however the premium increases each year with the age of the insured.
Permanent
Whole Life - is permanent protection since coverage is for the whole life of the insured as long as the premium is paid; these policies build cash value, tax deferred, and can be borrowed.
Whole life insurance policies may different based on how the policy owner pays the premium. Adjustable life allows the insured to determine how much coverage is needed and the affordable premium, then the insurer will determine the appropriate type of insurance.
Universal Life - the death benefit of this policy can be increased or decreased depending on the needs of the policy owner. Universal life policies have two components: an insurance component (always annual renewable term insurance) and a cash account (accumulates on a tax deferred basis each year).
Variable Whole Life - death benefits and cash value are not guaranteed under variable life, which is a fixed premium policy with an underlying investment account; the insured bares all risk.
Variable Universal Life - a combination of universal and variable life, it provides flexible premiums and an adjustable death benefit, and the policy owner decides where the net premiums will be invested.
Interest-Sensitive Whole Life - a fixed premium whole life policy that provides guaranteed death benefit to the age of 100; there is also a guaranteed minimum interest rate.
Equity-Indexed Life - cash value is dependent upon the performance of the equity index, although a minimum cash value is guaranteed, the premium is fixed and the death benefit is guaranteed.
For combination plans, such as joint life, click here to learn more.
LIFE INSURANCE QUOTES
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