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What is Life Insurance?

Although life insurance is not typically thought of as an “asset protection insurance”, it is considered asset insurance from the point of view of loved ones. Having life insurance allows family a certain degree of financial security in the case of unexpected events or death. This type of insurance is designed to protect family against debts and other expenses that can arise in the case of death. Life insurance is widely considered as the cornerstone of a sound financial plan.

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Major Types of Life Insurance

WHOLE LIFE INSURANCE

With a whole life insurance policy (Permanent Life), both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. This type of life insurance also accumulates cash value as the policy stays in force. The cash value can be accessed by the insured in the later years in the form of a loan against the policy.

UNIVERSAL LIFE INSURANCE

Universal life policies typically provide the insured with more flexibility than other life insurance products. The death benefit can stay level, or it can increase over the life of the policy. The policy also accumulates a cash value, which is credited with an interest rate as it grows. After money has accumulated in the account, the policyholder will also have the option of altering premium payments—providing there is enough money in the account to cover the costs.

TERM LIFE INSURANCE

Term insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from 1 to 30 years. Most term policies have no other benefit provisions. The cost of a term policy could rise on an annual basis (Annual Renewable Term) or it could stay level during the term chosen by the insured.

UNIVERSAL LIFE INSURANCE

Universal life insurance is a type of permanent, flexible life insurance policy that builds cash value. The cash value is interest sensitive, so its growth depends on the general financial climate.

As the cash value portion of the policy fluctuates, the death benefit available at the time of your death and the premiums required to prevent lapse of your policy may also fluctuate. Because of this, you must closely manage your universal life policy to avoid surprises.

After you pay your initial universal life premium, you can pay premiums any time, in almost any amount (subject to minimums and maximums). Failure to pay sufficient premium could cause a policy to lapse if there is not enough cash value in the policy to pay the cost of insurance and other policy charges.

You can change the death benefit on a universal life policy more easily than with a traditional whole life policy.

LIFE INSURANCE RIDERS

These are provisions that can be added by the insured to a life insurance policy, in most cases at an additional cost. Riders are there to provide an additional benefit to the insured that’s not offered in the original life insurance policy. Examples of common riders are Waiver of Premium, Child Rider, Chronic, Critical & Terminal Illness Rider, Disability Income, Waiver of Monthly Specified Premium, Additional Term Rider & Accidental Rider.