Related Topics:
Total needs vs. single needs | Choosing the life insurance policy | Product Descriptions

Disintermediation has become the buzzword of the financial services industry. It refers to the process of removing or reducing the involvement of "intermediaries" in delivering financial products or services to the consumer to save costs and thus provide better value. Those involved in the sale of life insurance products can take comfort from the fact that life insurance is not bought; it must be sold. In most life insurance sales, the sales person has a crucial role to play in getting the consumer to buy the product.

Term vs. Permanent
Term insurance, especially five or ten-year term, may be the exception. It has already been "disintermediated" to some extent through its availability on the Internet, over counters in certain drug stores and through a number of Automated Banking Machines. Long term client satisfaction is difficult to achieve because the product is highly price-sensitive and while the premium at the time of purchase may have been the lowest, the client may become aware of even lower premiums soon after having bought a new policy.

Permanent insurance refers to insurance that is designed to provide protection for an entire lifetime. If properly sold and serviced, long term client satisfaction is virtually assured. Because of the likelihood that it will stay on the books a long time, insurance companies are able to pay considerably higher commissions. Generally speaking there are two variations: whole life and universal life.
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Whole Life
The term is often used for the traditional permanent life insurance policies that feature guaranteed cash values with premiums payable for life or in the case of a "limited pay whole life", for a guaranteed or estimated period. For many decades this product was the mainstay of the life insurance industry. All companies offered it, usually on either a Par or Non-Par basis. Par means that the policyholder shares in the profits of the insurance company. Non-Par means that the policyholder does not, and in return pays a lower premium. Premiums are payable for life or for a limited period. Enhanced Whole Life is a variation on the Whole Life policy. It usually means that dividends (the annual share of the profits of a Par policy) are used to buy "Paid Up" insurance. The additional insurance is similar to the base policy and has cash values. In later years the additional policies are cashed in to pay premiums. Whole Life got into to trouble when dividends were not paid as projected and premiums that were supposed to vanish, didn't. The exact way in which a Whole life, especially Enhanced Whole Life policy works is difficult to explain and even more difficult for a policyholders to remember.
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Universal Life
Universal life differs from whole life in that these policies distinguish and itemize the protection element, the expense element, and the cash value element. By "un-bundling" the policy the insurance company can build more flexibility into it and the overall package becomes easier to understand and compare. Premiums are credited to the policy as they are paid. Most plans deduct certain administrative charges from the premium before crediting the balance. Each month, the insurance company deducts certain amounts from the policy value to cover the costs of mortality (death benefits). The balance of the policy value (fund value) earns interest at a rate as determined by the investment options chosen by the policyholder. For a full description of universal life go to Choosing the life insurance policy, or go to Product Descriptions for a table comparing UL with other products.
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Related Topics:
Total needs vs. single needs | Choosing the life insurance policy | Product Descriptions