Life insurance comes in many different policy types. Finding the one that's right for you depends on a number of factors.
To help you make the right choice for your family, let's take a look at six of the most common policy types. Afterward, I'll be happy to help you choose the type that's right for you and your family.
1. Term Life Insurance
Term life insurance provides you with a death benefit if you pass away during a specified period of time. If you die during the coverage period, your beneficiary receives the death benefit 100% income-tax free. If you live past the term period, your coverage ends and there is no payout. The monthly cost, or premium, for your coverage can be fixed for the duration of the term (usually 1 to 30 years) or it can be "annually renewable," meaning that the premium can increase each year as you get older. However, the premium for term insurance usually costs less than the premium for permanent insurance when all factors are the same, including the death benefit.
2. Whole Life Insurance
Whole life is permanent or cash value insurance that provides coverage for your entire life. With most whole life policies, part of your premium is added to the cash value account, which earns interest. Some whole life policies also pay a dividend, which represents a portion of the company's profits made during the prior year. The cash value grows tax-deferred and can either be used as collateral to borrow from the insurance company or be directly accessed through a partial or complete surrender of the policy. It is important to note, however, that a policy loan or partial surrender will reduce the policy's death benefit, and a complete surrender will terminate coverage altogether.
3. Universal Life Insurance
Universal life is another type of permanent life insurance with a death benefit and a cash value account. A universal life insurance policy will generally provide very broad premium guidelines (i.e., minimum and maximum premium payments), but within these guidelines you can choose how much and when you pay premiums. You are also free to change the policy's death benefit directly (again, within the limits set out by the policy) as your financial circumstances change. But if you want to raise the amount of coverage, you'll need to go through the insurability process again, probably including a new medical exam, and your premiums will increase.
4. Variable Life Insurance
Variable life insurance is a type of cash value coverage that allows you to choose how your cash value account is invested. A variable life policy generally contains several investment options, or subaccounts, that are professionally managed to pursue a stated investment objective. Choices can range from a fixed interest subaccount to an international growth subaccount. Variable life insurance policies require a fixed annual premium for the life of the policy and may provide a minimum guaranteed death benefit. If the cash value exceeds a certain amount, the death benefit will increase.
5. Variable Universal Life Insurance
Variable universal life combines all of the options and flexibility of universal life, with the investment choices of a variable policy. You decide how often and how much you'll pay in terms of premium, within policy guidelines. With most variable universal life policies, you get no guaranteed minimum cash value or death benefit, but you can direct how your premium payments are invested among policy subaccounts.
6. Joint and Survivor Life Insurance
You and your spouse may choose to buy a single policy of permanent insurance that covers you both. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased. Second-to-die policies are commonly used in estate planning to pay estate taxes and other expenses due at the death of the second spouse. Other than the fact that two people are insured by one policy, the policy characteristics remain the same.
I can help you sort through all the options and make the best choice for your family. Don't put off the decision - let's work together to get your family the coverage they need.