Term Life Insurance
Term life insurance provides guaranteed rates and coverage, with prices renewing depending on the term selected, most commonly every 10 or 20 years (known as Term 10 or Term 20).
This is a cost effective coverage type, and is often used to protect mortgages. The plan you select should be renewable and convertible, so that in the future you have the option to change your coverage to a permanent Whole Life or Universal Life plan as your needs change.
Annual Renewable Term
The simplest form of term life insurance is a term of one year. The death benefit would be paid by the insurance company if the insured died during the one year term, while no benefit is paid if the insured dies one day after the last day of the one year term. The premium paid is then based on the expected probability of the insured dying in that one year.
Because the likelihood of dying in the next year is low for anyone that the insurer would accept for the coverage, purchase of only one year of coverage is rare.
A version of this term insurance which is commonly purchased is annual renewable term (ART). In this form, the premium is paid for one year of coverage, but the policy is guaranteed to be able to be continued each year for a given period of years. This period varies from 10 to 30 years, or occasionally until age 95.
As the insured ages, the premiums increase with each renewal period. In this form the premium is slightly higher than for a single year’s coverage, but the chances of the benefit being paid are much higher.
Level Term Life Insurance
Much more common than annual renewable term insurance is guaranteed level premium term life insurance, where the premium is guaranteed to be the same for a given period of years. The most common terms are 10, 15, 20, and 30 years or level term to age 70 or even 100.
In this form, the premium paid each year remains the same for the duration of the contract. Most level term programs include a renewal option and allow the insured to renew for a maximum guaranteed rate if the insured period needs to be extended. It is important to note that the renewal may or may not be guaranteed.
Limited Pay Universal Life Insurance
The Limited Pay Universal Life (UL) insurance policy is for people who want permanent insurance and who want to finish paying for it within a certain time period (10, 15, or 20 years). Limited pay UL is easy to understand and manage and offers guaranteed insurance costs, guaranteed cash values, choice of cost of
insurance periods, and opportunities for tax-deferred growth in a variety of investment account options. Universal Life Insurance Policies, like Whole Life Insurance policies consists of four parts:
Mortality Cost
A percentage of the premium that covers the pure cost of the life insurance death benefit.
Administration Cost
A charge for administering the policy and premium tax.
Savings or Investment
The remainder on your deposit after mortality and administrative charges have been deducted that is invested.
Return on the Savings
The interest rate that is credited to the cash value in your account each year.
To learn more about the limited pay UL policy and determine if this product is best for you call My Insurance Broker today.
Life Insurance
Life is filled with uncertainty. Your life and your ability to earn income are among the most important things you can insure. Life insurance can help protect your family from serious financial hardship if the primary income earner were to die prematurely.
Many workplace group programs provide some coverage, but it is rarely enough, especially in cases where there is a mortgage and young children in the family.
Whole Life Insurance
Whole life insurance provides permanent protection with guaranteed level premiums and death benefit. This type of coverage can gain cash values the longer the policy is in force.
This coverage is excellent for those who know they would like lifetime protection and are willing to spend more than for Term Insurance. As long as the insured person continues paying the premiums, the insurance contract remains in force, regardless of age or health. As opposed to Term Life Insurance, the premiums will never increase. Upon the death of the insured person, the insurer pays a sum of money to the beneficiary of the insured decedent. Whole life insurance policies also maintain a savings component. With that component, the insured person accumulates a cash value. Cash value is a critical and material element of Whole Life Insurance.
Cash Value
With Whole Life Insurance, the premiums that are paid increase the cash value of the policy. Should you wish to increase the death benefit, the premiums will of course cost more, but you will also be increasing the cash value of the policy. Cash value and death benefit don’t decrease unless the insured person either makes cash withdrawals or premiums are no longer paid.
Tax Aspects
Premiums are paid with after-tax money. Because of this, the cash value of the policy grows without tax consequences. Should withdrawals from the policy be in excess of what the insured person paid into it, there is a tax consequence. That can be avoided though by taking a loan against the policy.
Dividends
Whole life policies pay dividends, and the dividends are not taxed. Dividends can be reinvested in the cash value of the policy, or they can be used to pay additional insurance with a larger death benefit.