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Life insurance comes in two types – temporary and permanent. Most people have some type of temporary insurance either as a term insurance policy, mortgage insurance, or group insurance policy (likely through work or an association plan like an automobile club).
The purpose of this insurance is usually for a short term or temporary need (to age 55 or 65) while the family is growing up and you are saving for retirement. It is to provide cash in the event of your death so those who depend on you will have the money to:
You can see the temporary nature of this insurance. It has a specific relatively short term purpose which will no longer apply by at least age 65.
his insurance can be very inexpensive for the amount you are purchasing ($1 million can cost between $60 and $100 per month depending on age, sex and smoking habits) because most people will never collect it. It is purchased to cover you life when you are relatively young and the need is frequently gone by age 55 or age 65 for some of those concerned about saving for retirement.
It generally comes in 5, 10, 15, and 20 year terms. This means that the premiums are guaranteed for that period of time and they will automatically renew at a higher rate for the next term period.
For example, a 10 year term policy has guaranteed rates for the first ten years and then you can renew it for another ten years without a medical at a set rate contained in the policy.
Do not renew it if your health is good as the renewal rates can be 25% to 100% more than the premiums if you shop around for a new policy. The assumption is that you only renew if you are too sick to get a new policy.
Also known as whole life insurance. A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Unlike term life insurance, a portion of your premium money goes toward your cash value. Also, your premium will remain constant during the time you are covered unless you choose otherwise. And, unless you make a change to your whole life insurance policy, you have lifelong coverage with no future medical exams.
A non-participating whole life policy has a level premium and face amount during your entire life. The advantages of such a policy are its fixed costs and relatively low out-of-pocket premium payments. Since the policy is non-participating it does not pay you any dividends.
A participating whole life policy pays dividends. The dividends represent the favorable experience of the company and result from excess investment earnings, favorable mortality and expense savings. Dividends can be paid in cash, used to reduce your premium payments, left to accumulate at a specified rate of interest or used to purchase paid-up additional insurance which will increase your face amount of coverage. Dividends are not guaranteed to be paid to you.
Within the two broad categories of traditional non-participating whole life insurance and participating whole life insurance there are various whole life plans that are available for you to choose.
The rate of return on a whole life insurance policy is very low compared to other investments, even with the tax sheltered investments factored in. Most investment professionals would agree that life insurance should not be used solely as an investment tool and you should judge your policy choices on the protection and not the rate of return. But, if you are in need of life insurance, the tax benefits and cash value is an added bonus when purchasing protection for your loved ones.
Universal life insurance provides permanent life insurance protection and access to cash values that grow tax-deferred at competitive interest rates.
Universal life products give you the flexibility to choose the amount of protection that best suits your family or business. It allows you to increase or decrease coverage as insurance needs change. Increased coverage may be subject to underwriting requirements. You may not decrease your coverage below the required minimum. A decrease may result in a surrender charge being applied against the policy’s cash value.