Life Insurance

Insurance coverage that pays out a death benefit to the specified beneficiaries upon the death of the insured.

Types of life insurance

There are two basic types of life insurance.  

• Term Insurance
• Permanent Insurance

Term Insurance

The simplest form of insurance.  Coverage is purchased for a specific price for a specified period of time.   If death occurs during that time, the beneficiary received the value of the policy.   The policy does not provide any returns beyond the stated death benefit.  Policies generally last for  5, 10, 15, 20 and 30 years. 

Permanent Insurance

Insurance that is purchased for duration of your life, not just a set period.  

Types of Permanant Insurance

• Whole Life
• Universal Life
• Variable Life
• Variable Universal Life

Whole Life

The most common type of permanent insurance.  It offers a death benefit along with a savings account.  Premiums remain level throughout the life of the policy, and the company invests a portion of your premiums.  Investment proceeds may or may not be shared with policyholder in the form of a dividend. 

 

Universal Life (also called adjustable life)

This policy offers more flexibility than whole life insurance. Policyholder has the decision as to how much money to put in over and above the premium.  Company choses investment vehicle.  The investment and returns go into a cash value account.

 

Variable Life

This policy combines death protectin with a savings acounnt hat you can investin Stocks, bonds, and mutual funds.   The value of your policy may grow quickly, but you also assume more risk.   If your investment does not perform well, the cash value and death benefit may decrease.  Some policies may offer a guaranteed death benefit option.

 

Variable Universal Life

 Combines the features of the variable life and universal life policies.   You assume all investment risks and rewards that are characteristic of Variable life, with the ability to adjust premiums and death benefit like in the Universal Life.

 

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations: Replace income for dependents If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognized case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death. Pay final expenses Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance. Create an inheritance for your heirs Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. Pay federal “death” taxes and state “death” taxes Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. Changes in the federal “death” tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increases in their state-level “death” taxes. Make significant charitable contributions By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums. Create a source of savings Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

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