Life Insurance 101

Life Insurance can be an essential component of a complete financial plan, helping provide protection for your future. Whether you need the temporary protection for a short term or a more permanent option, there are many different types that may help you:

  • Maintain your family's standard of living
  • Provide for your children's education expenses
  • Pay off a mortgage, car loan or other personal debt
  • Cover a business loan
  • Fund a buy/sell agreement for your business
  • Protection your business from the loss of a key employee
  • Fund charitable bequests
  • Cover final medical bills
  • Pay for final expenses
  • Create efficient transfer of assets to beneficiaries

Let's explore some of the different types of life insurance that are available.

Your family depends on you, and there's no substitute for your love and support. But there's comfort in knowing you can at least guarantee some financial stability for them.

Whole life insurance provides coverage for your entire life for you and your family. Coverage can last for the rest of your life, and the premium(s) - the price, or amount of money you pay as a single payment or periodically to maintain insurance coverage - stay fixed regardless of age, health, or lifestyle changes.

There may be times when you need financial protection for a limited period. Term life insurance provides maximum protection with minimal cost, with coverage for a specific period of time. It is pure life insurance that does not increase in value. If you die within the designated time frame, your beneficiaries will receive the death benefit amount. The younger you are, the lower the premium - or price - you pay for term life insurance (subject to certain risk factors). Some term products offer flexible features such as convertibility to a permanent product and return of premium. These may be a good choice when you cannot predict your future needs.

Convertibility means when you decide that you need a more permanent form of insurance, your policy can be converted into a permanent life product without new evidence of insurability. Return of premium allows you to recover part of your insurance premiums at the end of the agreed upon term if you are still living. Term can be an answer to a variety of business and personal challenges that could arise from an unexpected death.

Universal Life insurance offers the best of two worlds - a set amount of coverage with tax-deferred, cash accumulation account based on current interest rates. This permanent insurance plan generally provides lower premiums for people who have life insurance needs that may change in the future, or who desire the cash value build-up universal life policies can provide.

Some Universal Life products offer you the flexibility to design the product to meet your needs, with the ability to increase and decrease the amount of coverage or premium payments as your circumstances change. It can be a flexible way to meet your long-range insurance needs.

While Universal Life insurance policies maintain certain guarantees, they provide benefits that are based on current assumptions for the underlying interest, mortality, and expense formulas. These current assumptions are based on current market conditions and actuarial assumptions, which may change over periods of time. Changes in these assumptions may require additional premium payments in order to meet your needs. These products should be purchased with a thorough understanding of the impact changing circumstances will have on policy benefits and values.

Of course, there are other types of life insurance and even variations of the ones we've covered here. The life insurance plan that's best for you depends on your family's needs and how you prefer to pay your premiums. Your financial professional can help you determine the type and amount of insurance you need for your specific situation.

Updated 10.9.15

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