Life Insurance
LIFE INSURANCE
LIFE INSURANCE
Life insurance is a unique type of product which is used to solve many of the complex financial problems we face today. Life insurance can be used for personal, family, and/or business purposes. There are basically two types of life insurance, temporary (term) and permanent.
Term Life Insurance
Term life insurance is a policy which will provide a pool of money, the death benefit, to the beneficiaries, as a result of the premature passing of the insured. Term insurance is temporary in that the policy will be in effect for a specified period of time, e.g., 10, 15, or 20 years. Many life insurance carriers will allow the owner to continue to keep the policy in force past the maturity date, however, the premiums for that policy will increase every year after the original maturity date.
Permanent Life Insurance
In addition to the Death Benefit aspects of these policies, permanent life insurance policies offer Living Benefits to the policy owners, as well. Further, modern hybrid policies are adding Accelerated Death Benefit and Chronic Care riders to enhance the value of these policies to the policy owner (state dependent).
There are 2 types of permanent life insurance policies: Whole Life and Universal Life. Universal Life also has additional lines of Indexed Universal Life and Variable Universal Life. Carriers offer different packaging of these product in order to appeal to varying needs of their clients.
DEATH BENEFIT USES
The Death Benefit of a life insurance policy can be used in any number of ways. Examples include, but are not limited to:
- Create an estate to provide funds for the insured’s loved ones
- Pay off loans, e.g., mortgage, personal or business
- Pay death taxes or estate settlement expenses
- Create a charitable gift or legacy
- Protect a business from the loss of a key employee
- Fund a business transfer
- Balance inheritance level between beneficiaries
LIVING BENEFIT USES
Permanent life insurance policies, Whole Life and Universal Life, build cash value, a benefit specific to permanent life insurance products. The cash value grows tax-deferred. A portion of the accumulated cash value can be used as a “living benefit” by the policy owner. Access to this “nest-egg”, if you will, is typically done through the use of policy loans. If structured correctly, these policy loans can provide tax-free disbursements. Keep in mind that loans against your policy accrue interest. Loans decrease the death benefit and cash value by the amount of the outstanding loan(s) and accrued interest.
Examples of what people use these funds for are:
- emergency funding
- helping to fund a college education
- purchasing a new car
- paying for a wedding
- starting a business
- supplementing retirement income.
Essentially, the cash value can be used for any purpose the client wants.
Other “living benefits” include Critical Illness, Chronic Care, and Terminal Illness riders (state and policy dependent).
The Critical Illness rider enables the insured the ability to have access to a portion of the Death Benefit should they be diagnosed with certain medical condition(s). This rider is not a Disability Income Insurance policy, but it can provide some needed funds for dealing with lost income.
The Chronic Care rider allows a portion of a policy’s death benefit to be released early should the insured be certified to require chronic care services. This rider should not be viewed as a Long-Term Care Insurance policy replacement, but it does provide the insured with an option.
The Terminal Illness rider allows the insured to have access to some of the death benefit funds prior to their passing due to a medically condition(s) which will result in the insured expected death typically within the next 12 to 24 months, policy dependent.
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