Life insurance provides beneficiaries with a death benefit to help cover expenses like debt, funeral costs, and income replacement. Some policies also offer a cash value component.
Beneficiaries can be people or trusts. Some policies have riders that allow policyholders to customize their coverage. Life Insurance Spartanburg SChttp://www.lifeinsuranceupstate.com has a handy calculator to help you determine how much life insurance you need.
Term Life
Term life insurance offers you the largest amount of coverage for your premium dollar. It is a contract between you and the insurer that pays a death benefit only if you die during the policy’s term, which can be one to 30 years. Most term policies don’t offer any other provisions. Generally, you choose the length of the term and the amount of the death benefit. A few types of term policies are available. You can select a level term policy where the death benefit remains the same for the entire term or a decreasing term policy where the death benefit declines in one-year increments each year of the policy. Some term policies are guaranteed issues, which means you can be approved for the policy without a medical exam or health questions. These policies will usually have higher premiums.
Depending on the type of life insurance you choose, you may also have the option to include a check with your application that will pay your first premium for you, giving you temporary coverage while the rest of your application is processed. This option is important because it will cover you if you don’t qualify for the life insurance you want when your application is approved.
In addition to reviewing your answers to the life insurance application, the insurer will usually conduct a medical exam and ask for copies of your recent prescriptions. Depending on the type of life insurance and the amount of coverage requested, you may also be asked to do an EKG or cognitive assessment. Some companies use a database that compares applicants to others and provides an indication of their health.
If you’re approved for a life insurance policy, the next step is to name beneficiaries. Beneficiaries can be any persons or entity you want to receive the death benefit. While it is common to choose family members as beneficiaries, you can also select a charitable organization or trust.
If you’re seeking permanent life insurance, a whole life policy is an option. While many experts don’t recommend this kind of policy for everyone, it can make sense in certain circumstances. In a nutshell, it is designed to provide a death benefit if you die, but it also has a savings element that will accumulate on a tax-deferred basis, and you can borrow against it.
Whole Life
Unlike term life insurance, whole life insurance is designed to last throughout the policyholder’s entire lifetime. It offers guaranteed death benefits and cash value, along with flexible coverage options that allow the policyholder to change the policy terms over time.
Depending on the type of whole life insurance policy, the policy’s cash value may accumulate at a fixed rate or earn a portion of the company’s investment earnings. This cash value is separate from the death benefit and can be withdrawn or borrowed against, although this will impact the amount of the death benefit that will be paid to beneficiaries. Generally, the amount of cash value that is withdrawn or borrowed will be taxed at income rates.
In addition to building a guaranteed cash value, whole life insurance policies can also earn dividends,2 which can be taken as a lump sum, used to reduce the premium, left to grow at interest, or applied to purchase paid-up additional insurance. These dividends are based on the company’s favorable experience, including excess investment earnings, favorable mortality, and expense savings.
Whole life insurance also provides flexible options for changing the policy, which can help to keep it aligned with a policyholder’s needs and goals over time. Some policies include flexible riders that can change the coverage, such as waiver of premium or accelerated death benefit, while others offer flexible premium payment plans and flexi-life options.
The perks of whole life insurance may make it an attractive option for those who are looking to protect their loved ones from financial burden, as well as those interested in estate planning or funding retirement. However, it’s important to consider your options and determine if this type of life insurance is right for you.
To find a life insurance plan that fits your needs, talk to a trusted and knowledgeable financial professional who can guide you toward the solution that is best for you. Be sure to choose a financially strong life insurer, as indicated by their ratings from independent rating agencies.
Universal Life
A form of permanent life insurance, universal life (UL) offers flexibility in premiums and allows policyholders to build cash value. Unlike Whole Life, which has level premiums and a fixed death benefit, UL offers flexible premiums that can go up or down within certain limits.
Often, part of the premium goes toward an investment account that earns interest on a tax-deferred basis. The interest credited to the policy is referred to as the cash value and can be used for premium payments, withdrawals, or as a partial payment against the death benefit.
The other part of the premium goes toward costs associated with providing lifelong coverage, like administration fees, mortality charges, and the cost of insurance (COI). Any amount of the COI that is higher than the cash value is added to the death benefit. As a result, the death benefit can grow over time.
A UL policy can also have a rider component that allows the death benefit to be increased at specific life stages or policy anniversaries, usually without the need for an exam. Other riders can provide benefits such as an accelerated death benefit, waiver of premium disability, and accidental death benefits.
While these features can make a UL policy attractive, there are some important considerations to keep in mind. With a UL policy, the cash value can decrease as you withdraw or use it to pay for premiums, which could mean that you have little or no cash value left at death and your policy may lapse. This is particularly true for variable UL policies that are linked to stock market indexes.
For this reason, a UL policy is typically best for people who are interested in the long-term security of a permanent life insurance policy, but who are willing to monitor their policies periodically with their agent or financial professional to ensure that they remain on track. These types of people might also consider whole life or variable life insurance as alternatives to a UL policy.
Variable Life
If you’re looking for more investment control and higher potential returns than whole-life insurance policies, consider variable life. These permanent policies allow for higher cash value growth from market investments through a portfolio that contains up to 50 options, including bonds and mutual funds. However, this also means the policy can have higher fees and carries more risk than other permanent life insurance types.
For this reason, it’s important to talk with a fee-only life insurance consultant and understand the risks before you purchase a variable life policy. It’s also essential to review the policy’s prospectus, a document filed with the Securities and Exchange Commission that outlines fees, expenses, and investment options.
With a variable universal life insurance (VUL) policy, you can direct your cash value into multiple investment sub-accounts—some of which offer more than 50 different options. Depending on how these separate accounts perform, the death benefit could grow or decrease.
Unlike other permanent policies, VUL allows you to adjust premiums and death benefits within certain guidelines, offering financial flexibility. But, you must be prepared to take on more risk and pay more fees, as these adjustments can potentially reduce the value of your death benefit.
Like other investment vehicles, variable life insurance comes with a variety of risks. You’ll need to be able to tolerate the risk of loss of principal, and the possibility that your account may decline due to market fluctuations. You’ll also need to be able to pay your premiums and keep the amount of the death benefit in reserve, as failing to do so could result in a lapse and loss of insurance coverage.
If you decide to purchase a variable life insurance policy, make sure the company you’re buying it from has a solid reputation and is rated well by independent rating agencies. Look at a policy illustration carefully, paying close attention to the non-guaranteed portions of the projections.
If you decide the policy isn’t right for you, most insurance companies will allow you a short period to cancel it, known as the free-look period. This will vary by company but is typically 10 to 30 days.