Life Insurance Options

Term Life Insurance

Term insurance provides a preset amount of cash if you die while the policy is in force. For example, a 10-year $250,000 term policy pays off if you die within 10 years.  If you live beyond the end of the term, you get nothing. Term insurance is life insurance coverage and nothing else. The policy does not accrue any cash value.

Term insurance is the least expensive form of coverage over a limited period of years. There are many types of term policies, some automatically renew for an additional term and some do not. The basic fact is term insurance pays your beneficiaries if you die during the policy time period only.

Term life insurance is popular for younger people with families.  The risk of dying in your 20s, 30s or 40s is reflective of the lower cost for these types of policies.  If you need insurance for only a short time for a business loan or other short term needs, this is the best option. 

Term policies varied options with many similarities, some policies automatically renew at the end of the term without a medical examination, occasionally with a higher premium while some do not. Some can also be converted from a term to universal or a whole life policy during the term, without the need to requalify.

Whole Life Insurance

Whole life insurance offers a fixed amount of coverage, which cannot be canceled, in exchange for fixed payments. The payments remain constant throughout your life thus in the early years of the policy the premiums are higher compared to mortality tables estimating times of death. This is how reserves are accumulated. If you continue to live a long life after the policy was issued, your payments become low, compared to your risk of death. The surplus becomes your cash reserve, which grows over time. The cash reserve earns dividends, paid by the insurance company. After a set time you can borrow against the cash values. You can also cancel the policy and receive its cash surrender value.

Universal Life Insurance

Universal life combines features of both term and whole life insurance. With universal life, you build up a cash reserve, but you can also vary premium payments, amount of coverage, or both. Universal life policies also traditionally provide you with more consumer information on things such as company overhead expenses, reserves, cost of insurance, and how much is goes towards savings. There can be other significant advantages to universal life as well.  

Variable Universal Life Insurance

Variable Universal Life Insurance combines the premium payment and coverage flexibility of universal life insurance with the investment opportunity of securities, stocks and bonds usually via mutual funds.  By combining insurance features with mutual funds the cash values of the policies are reflective of the stock market environment and the choices that are made regarding the fund allocations.

Single-Premium Life Insurance

With single-premium life insurance you pay up-front all the premiums due for the life of the policy. Policies with savings features normally can be purchased using this method. One reason so much cash is committed to buying these policies is that it enables you to give the fully paid for policy to new owners, which can result in estate tax savings. Because there are no more premiums necessary the single premium policy doesn't involve risks that the new owners will not make payments, which could allow the policy to lapse.  

Survivorship Life Insurance

Survivorship life insurance also called, second to die or joint insurance, is relatively new product. It is a single policy that insures two lives, usually spouses. When the first spouse dies, no proceeds are paid. Instead, the policy remains in force and the surviving spouse must continue to pay premiums. The death benefit is paid when the second spouse passes away.

This type of policy is mainly used as part of an estate plan for wealthier couples that anticipate significant estate taxes will be assessed on the death of the second spouse. This type of insurance may also be desirable when a major family asset is a valuable family business, or real estate holdings that aren't liquid, and which the survivors may want to keep and protect. In addition, this type of coverage may be desirable if one member of a couple is in poor health, making other insurance policies expensive.  Due to the fact that two lives are insured, premiums on these are less than on one person's life. Usually, if one of the spouses is in reasonably good health this type of policy can be obtained.

First to Die Life Insurance

“First to Die” life insurance is the reverse of survivorship insurance. With a first to die policy, two or more people, usually business partners or co-owners, are insured under the same policy. These policies are usually part of a business buy-out agreement whereby the company or partnership itself buys and funds the policy. When the first insured dies, the benefits typically go to the company or partnership.  When one of the partners dies, the proceeds of can be used to pay off the deceased owner's interest, under a buy-out clause. Or, if the deceased owner's beneficiaries wish to, and are allowed to, participate in the business, the funds can be used for the costs of whatever adjustments and problems the business faces because of an owner's death.  

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Content is for informational purposes only and may not accurately reflect your specific situation. Information is not intended to provide legal, tax, or accounting advice. You should consult a qualified advisor for advice specific to your own circumstances.