Which Life Insurance Product Is Best For You?
When I am asked “what is the best life insurance to own?”, my response varies because it depends on your philosophy and pocket book. There are four general life insurance product categories; Term Life, Whole Life, Universal Life and Variable Life. Term insurance or permanent insurance? Own a home or rent an apartment? Own a car or lease? These are often similar debates and generate compelling arguments to each choice.
How does Term Life insurance work? Term Life insurance policies pay a death benefit if the insured dies during the term period. These policies expire at the end of the predetermined term, if the insured has not passed away. As the insured often times outlives the term period, term policy premiums tend to be less expensive, particularly to the younger and more healthy. Term policies can be appealing, if you are looking to pay low premiums, don’t need cash value, but remember missing a single premium payment may jeopardize coverage. In essence, you pay premiums until you die, you may outlive the coverage period or you cancel the policy because of premium increases.
How does Whole Life insurance work? Whole Life policies pay death benefits if the insured dies (in some instances at ages above 100!). As the policy is in-force for the insured’s entire lifetime, premium payments are required every year or for a specific period. Premiums typically remain guaranteed level for its lifetime. Whole Life policies have a cash value, which can be accessed by the policy owner by loan or at surrender of the policy, if the death benefit is no longer required. Whole Life policies also provide the opportunity to take a paid-up option, which can be attractive if the policy owner no longer wants to pay premiums and desires a paid up death benefit that cannot be outlived.
How does Universal Life insurance work? Universal Life insurance is a type of permanent life insurance policy that provides a death benefit in the event of the death of the insured. Universal Life insurance policy premiums are generally more expensive than term life insurance, however, they have the added benefit of flexible premiums and benefits. These features permit the policy owner to adjust the payments and death benefit amount, as desired. A Universal Life policy builds cash value allowing the policy owner the opportunity to borrow against the value of the policy at a favorable rate. In addition to the insurance, this policy provides a tax-deferred growth with a portion of your monthly premiums going into the account growing at competitive rates of interest.
How does Variable Life insurance work? Variable Life insurance provides a permanent death benefit when the policyholder dies. Premiums are usually significantly more expensive than Term Life insurance. The excess premiums above the costs of insurance are put in an investment portfolio. The interest earned on the investments - which grows tax-free, may be used towards payment of the monthly premiums. Due to market volatility, this is can be an unstable form of permanent life insurance, with the final benefit subject to the performance of the individual funds in the marketplace. Variable Life insurance is most suitable for individuals seeking permanent life insurance, as well as an alternate investment avenue.
As you can see, there are features and benefits to each of the life insurance products reviewed above. What is best for you? That is a matter of personal choice based on your personal needs and financial plan.
About the author: Ken Buccico holds a LUTC designation and has been in the life insurance business for 39 years. His wealth of experience empowers clients to make best possible decision regarding a life insurance policy. To explore the best life insurance option, contact Ken at 1-800-651-1953 or KBuccico@Pivot.com.