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Term and Permanent Insurance
There are two main types of life insurance policies, each
for different purposes. Term insurance is strictly for short
term needs. Permanent insurance provides coverage for life
and is still available in the traditional whole life form
or in several of new universal life type of policies. Among
the latter, Variable Universal Life (VUL) has become the most
popular.
Term insurance
Is usually recommended if you need financial protection
for a specific period of time, whether it's one, five, 10
or even 20 years. Term insurance helps cover needs that
will disappear over time, such as a mortgage or college
expenses. It also is recommended for families that need
a large amount of life insurance protection and are on a
limited budget, since term insurance premiums can be less
expensive than other types of life insurance.
Most policies can be renewed up to a certain age - usually
age 75. Premiums increase for each renewal period. It pays
a death benefit to your beneficiary only if you die while
the policy is in force. There are no cash values if you
surrender the policy before you die. At the end of the policy
term, protection ends unless the policy is renewed. Your
beneficiary will not have to pay federal income taxes on
the death benefit
Permanent Insurance
Whole or ordinary life, one of two forms of permanent
insurance used to be the most common. The premiums and death
benefit usually remain constant over the life of the policy.
Variable life policies have a cash value tied to the performance
of financial markets. It can vary with the performance of
a portfolio of investments, which you select. The cash value
and death benefit may grow more quickly in a variable life
policy than in other types of policies, but you also have
more risk. If the market does not perform well, your cash
value and death benefit may decrease. Some policies guarantee
that the death benefit does not fall below a minimum level.
Several forms of universal life the most popular of which
is Variable Universal Life (VUL) have overtaken whole life.
VUL lets policyholders make their own investment decisions.
Underlying the policy is a wide range of investment options
ranging from stock and bond to balanced and specialized.
A Fixed Rate Option is usually also available. The policyholder
selects the options that complement the insurance goals,
investment objectives and tolerance for risk. Premium dollars,
less taxes and sales charges, are invested in the portfolios
selected through the options. Premium dollars have the potential
to grow and to accumulate cash value in the contract. The
cash value can be withdrawn or borrowed against at a fixed
interest rate to meet future needs (e.g., a college education
for your kids, the down payment on a new home).
VUL offers flexibility with regard to the timing and the
amount of premium payments (subject to certain minimums
and maximums), the type of death benefit, and death benefit
guarantee options. As long as there is sufficient cash value
in the policy to cover charges and fees, the VUL will remain
in force. Policyholders have the flexibility to vary payment
amounts according to their changing financial situation.
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