Types of Life Insurance

What is the right kind of life insurance ?

All life insurance policies agree to pay an amount of money when you die. But all policies are not the same. Some provide permanent coverage and others temporary coverage. Some policies build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Your choice should be based on your needs and what you can afford.

Type of Life Insurance

  • Term Insurance

Term Insurance covers you for a term most commonly for a period of 10, 20 or 30 years. It pays a death benefit only if you die in that term. Term insurance generally provides the largest immediate death protection for your premium dollar.

Most term policies are renewable for one or more additional terms even if your health changed. Each time you renew the policy for a new term, premiums will be higher. Check the premiums at older ages and how long the policy can be continued.

Many term insurance policies can be traded before the end of the conversion period for a whole life policy- even if you are not in good health. Premiums will be considerably higher than you have been paying for the term insurance.

  • Whole Life Insurance

Whole Life Insurance covers you for as long as you live. The common type is called straight life or ordinary whole life insurance – you pay the same premium as long as you live. These premiums can be several times ( 8-10 times ) higher than you would pay for the same amount for the term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period.

Whole Life policies develop cash values. If you stop paying premiums, you can take the cash – or you can use the cash value to buy continuing insurance protection for a limited time to reduced amount.

You may borrow against the cash values by taking a policy loan. Any loan and interest on the loan that you do not pay back will be deducted from the benefits if you die, or from the cash value if you stop paying premiums.

Combinations and Variations: You can combine different kinds of insurance. For example, you can buy whole life insurance for life time and add term insurance for the period of the greatest insurance need. Usually the term insurance is on your life , but it can also be bought for your business partner, spouse or children.

Endowment Insurance: These policies pay a sum or income to you if you live to a certain age. If you die before then, the death benefit is paid to the person you named as beneficiary.

Other policies may have special features which allow flexibility as to premiums and coverage. Some let you choose the death benefit you want and the premium amount you can pay.

One kind of flexible premium policy, often called Universal Life Insurance, lets you vary your payments every year, and even skip a payment if you wish. The premiums you pay (less expense charges) go into a policy account that earns interest, and charges for the insurance are deducted from the account. Here, insurance continues as long as there is enough money in the account to pay insurance charges.

Whole Life Insurance and Universal Life Insurance include a savings element that grows tax deferred.  A portion of the premium is invested by the insurance company in very conservative vehicles, for example, interest only payments. In the most recent years, Fixed Index Universal Life Insurance are quite popular, which offer to invest in the S& P index, European indexes and Asian indexes. If the stock market does go down, you will not loose any value of your policy but will also not gain in the year .  If the stock market goes up, you will enjoy the gain up to a specific cap. Most caps are at 10-12 % gain per year, depending on the policy.

Other types are variable life insurance.  They are a special kind of insurance where the death benefits and cash values depend upon investment performance of one of more separate accounts. You should know that if the investment looses value, your life and death benefit will also loose value, therefore you should study the prospectus provided by the carrier diligently.

Finding a low cost policy!

After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money.  A simple comparison of the premiums is not enough. Here are other things to consider:

  • Do premiums or benefits vary from year to year?
  • How much cash value will be build up under the policy?
  • What part of the premiums or benefits is not guaranteed?

If you would like to have more information or need a quote for life insurance, please do not hesitate to contact us at info@solidhealthinsurance or call 310-909-6135.