What is LIFE INSURANCE?
Life Insurance is essentially a contract between you and the insurance company. In exchange for premium payments, the insurance company will pay a lump sum, called a death benefit, to your beneficiaries at the time of your death. There are many kinds of life insurance. The kind you need is based on your goals and what you can afford. The following policies are well known, frequently purchased, and designed to put you on a path to greater security and protection.
Term life Insurance. The best use for term life is to protect your family against large debts such as a mortgage or college loan. Let’s say you have a 25 year $400,000 morgtage. If you die before the mortgage is paid off, a $400,000 term policy completes the payments on your home. Term life is the most inexpensive insurance you can purchase. It has a designated expiration date (lasts for a ‘term’). While the most popular form of term life has a fixed premium amount, you can get a policy that will increase or decrease the face amount over time. While some life insurance policies are investment vehicles, term life is not one of those. For this reason, it’s called pure or simple insurance. They come with accelerated living benefits. They can be renewed when the policy matures. Many can be converted into whole life insurance.
Whole Life Insurance. Called permanent insurance because it lasts your entire (whole) life. Like term insurance, its purpose is income replacement. Where whole and term life differ is its purpose. A portion of your premium goes toward accumulating cash value. Cash value, and other mechanisms of the policy, increase the face amount of your policy over time. Cash value has other benefits. It can cover missed premiums. You can use it to take out a loan on the policy. Whole life insurance is an investment. Riders can include, but are not limited to, accelerated living benefits, waiver of premium, and long-term care. Applications are subject to medical underwriting.
Final Expense. Final expense is a type of whole life policy. Its purpose is to pay expenses when the insured dies. Expenses include, but are not limited to, funeral and burial costs, credit card debt, and remaining medical bills. Final expense is not designed to replace income. Maximum face amounts are small compared to traditional whole life policies. Most final expense plans are medically underwritten but some don’t require it. The insurance company accepts you “as is.’ When this occurs, the company takes on greater risk. Greater risk means higher premiums and lower face amounts. Premiums remain level for the life of the policy.
Guaranteed Universal Life (GUL). Guaranteed Universal Life is designed for people who want a policy to last their entire lives but who can’t afford whole life insurance. Think about GUL as a hybrid of term and whole life. Because GULs don’t accumulate cash value, they’re like term policies. The face amount you sign up for is what your beneficiary receives when you die. Unlike term policies, GUL’s are guaranteed to be in force to age 90, 95, 100 or 121. They’re less expensive than whole life but more expensive than term. Premiums are level. Riders include, but are not limited to, return of premium (also called ‘cash out’) and accelerated benefits. Applications are subject to medical underwriting.