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Six Basic Kinds of Life Insurance

Regardless of how fancy the policy title or sales presentation might appear, all life insurance policies contain benefits derived from one or more of the three basic kinds shown below. Some policies due combine more than one kind of life insurance and can be confusing.

Term Life Insurance

Endowment Life Insurance

Whole Life Insurance

Variable Life Insurance

Universal Life Insurance

Variable Universal Life Insurance

Term Life Insurance

Term life insurance is death protection for a term of one or more years. Some companies are offering policies with terms up to thirty years. Premiums on term insurance remain level during the life of the policy. Term Life Insurance has no cash value account. Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your premium dollar.

Some term life insurance policies are renewable for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued.

Some term insurance policies are also convertible. This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.

Life Insurance “Endowment”

An endowment insurance policy pays a sum or income to you, the policyholder, if you live to a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Premiums and cash values for endowment insurance are higher than for the same amount of whole life insurance. Thus endowment insurance gives you the least amount of death protection for your premium dollar.

Whole Life Insurance

Whole life insurance gives death protection for as long as you live. The most common type is called straight life or ordinary life insurance, for which you pay the same premiums for as long as you live. These premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term insurance policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period.

Although you pay higher premiums, to begin with, for whole life insurance than for term insurance, whole life insurance policies develop cash values which you may have if you stop paying premiums. You can generally either take the cash, or use it to buy some continuing insurance protection. Technically speaking, these values are called nonforfeiture benefits. This refers to benefits you do not lose or forfeit when you stop paying premiums. The amount of these benefits depends on the kind of policy you have, its size, and how long you have owned it.

A policy with cash values may also be used as collateral for a loan. If you borrow from the life insurance company, the rate of interest is shown in your policy. Any money which you owe on a policy loan would be deducted from the benefits if you were to die, or from the cash value if you were to stop paying premiums.

Variable Life Insurance

Variable life insurance, provides permanent protection for you and death benefits to your beneficiary upon your death. The value of the death benefits may fluctuate up or down depending on the performance of the investment portion of the policy. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum, however, a minimum cash value is seldom guaranteed. Variable is a form of whole life insurance and because of investment risks it is also considered a securities contract and is regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Universal Life Insurance

Universal Life insurance is a variation of Whole Life. The insurance part of the policy is separated from the investment portion of the policy. The investment portion is invested in bonds and mortgages, the investment portion of Universal Life is invested in money market funds. The cash value portion of the policy is set up as an accumulation fund. Investment income is credited to the accumulation fund. The death benefit portion is paid for out of the accumulation fund. Unlike Whole Life Insurance, the cash value of Universal Life Insurance grows at a variable rate. Normally, there is a guaranteed minimum interest rate applied to the policy. No matter how badly the investments go by the insurance company, you are guaranteed a certain minimal return on the cash portion. If the insurance company does well with its investments, the interest return on the cash portion will increase.

Variable-Universal Life

Variable universal life insurance pays your beneficiary a death benefit. The amount of the benefit is dependant on the success of your investments. If the investments fail, there is a guaranteed minimum death benefit paid to your beneficiary upon your death. Variable universal gives you more control of the cash value account portion of your policy than any other insurance type. A form of whole life insurance, it has elements of both life insurance and a securities contract. Because the policy owner assumes investment risks, variable universal products are regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that’s right for you. It’s amazing how much rates may vary from company to company for the same coverage.

Everybody who has loved ones to take care of in life wants to be sure that those loved ones are also taken care of after they are gone. There are a few ways to do this and life insurance is certainly the most popular of them. But there are so many different types of life insurance that it is difficult to know what to purchase unless you are informed of them all.

You might be tempted to go with the cheapest one that you can find, but these may not offer everything that you need. Or you may be the type of person who believes you get what you pay for and be tempted to purchase the most expensive one, but you might be surprised at what you get with it, too.

The best thing you can do is to look for information on life insurance policies and be an informed consumer. You can research various types online or you can contact a broker to get the kinds of details you need. Often an inexpensive life insurance policy is exactly what you need.

Some of the inexpensive life insurance products are called term life insurance policies. These are policies that expire after a predetermined amount of time, the term of the policy. You pay a low monthly price for it and if something happens to you your family, or whomever you designate, can cash it in at full face value.

The best thing about a term policy is that it is inexpensive life insurance, especially if you get it while you are young. The drawback of term life insurance is that if you outlive your ten year policy, you are ten years older when you renew it and the price of the policy will increase. And, you cannot cash in a term life policy in most cases, once you have outlived it, the policy is gone with the wind.

A more expensive policy is called whole term life insurance. This kind of life insurance is also considered to be an investment. A portion of the price you pay for the policy goes into stocks or bonds, or some other type of investment product. A whole life policy typically is a long term investment and can be cashed in prior to your death if you need it, but it is advisable to wait 15 or 20 years before considering a cash in or you are likely to not earn a return on your investment.

There are things that will increase the price of even an inexpensive life insurance policy. These can include things like your age, the state of your health, and even if you are a smoker. There are special policies for seniors and for those in failing health, but they can be quite expensive. A smokers life insurance policy can cost substantially more, too. You cannot reverse your age, and often you cannot do much about your failing health, but you can quit smoking to lower the cost of your life insurance premiums in the future.

Any smart person looking into obtaining life insurance will eventually ask the question how is life insurance taxed? Over the years, that question has become more and more difficult to answer because of the way that many life insurance policies have become investment vehicles. It’s always a good idea to consult a competent professional on any financial matters but this article will give you some information so that you will have some general knowledge about the relationship between life insurance and taxes.

Many insurance policies today will take the premiums you pay and invest them in stocks, bonds, mutual funds, or other types of investments. With these investments the cash value of your policy can grow. But, the money earned on an insurance policy is generally tax-deferred meaning that no tax is due until the money is paid out or the policy is terminated. The tax-deferred earnings on an insurance policy can help the growth of the cash value of that policy a great deal. And if you need some cash but are worried about paying taxes on money you take out of your insurance policy, you can usually borrow money from your insurance policy and since borrowed money is not income you will not pay any income tax on that money. You will have to pay it back though.

But what about when the benefits are paid out, are the benefits subject to any taxes? When you pay your premiums on your life insurance policy the premiums are paid with after-tax dollars. Therefore, money that is paid out by your policy will generally be tax-free. For example, if you pass away and the beneficiaries named on the policy are your children, your children will not have to pay income tax on the money they receive from your life insurance policy. However, estate taxes may be applicable depending on the size of your estate and various other factors.

Life insurance policies can be used to creatively reduce estate taxes by a considerable amount. But estate taxes are a whole different subject and beyond the scope of this article. There are circumstances where taxes are applied to life insurance but when used correctly life insurance can greatly reduce the amount of taxes that you or the loved ones you leave behind have to pay.

Life insurance involves a contract between the insurance company and the insured, which is bought by making regular periodic payments known as premium. These contracts are facilitated with the assistance of life insurance agents. They help their customers decide, the type of life insurance they would require – whole life or term life. Life insurance agents also help their clients find suitable rates for the kind of insurance policy they require. To become a life insurance agent, a person needs to be committed and willing to work hard for the leads.

Life insurance agents have the option of becoming full time or part time professionals. To qualify as a full time or a part time professional, interested candidates need to take a course for a stipulated number of hours. After the completion of the training, prospective agents need to clear an exam, to obtain the license to sell insurance in that state. After having substantial experience in the field, agents can attain respected designations such as Chartered Property or Casualty Underwriter. However, along with experience, agents are also required to take, intensive courses and examinations to be considered for such positions.

Life insurance agents usually do not adopt the door-to-door method, to sell their policies, but use various methods of marketing to conduct their business. They have to generate leads through different sources and need to be on the look out for prospective customers all the time. This involves a lot of hard work and dedication to the chosen industry. Life insurance agents need to be able to quickly understand their prospective customers requirements and sell the right kind of product to them. Unethical practices and wrong selling will not help the agents’ business in the long run. Therefore, becoming a life insurance agent has many lucrative benefits, provided the interested person is willing to work for it.

Whole life insurance is the plan of choice for many people. There are many variations to this plan. It may be a good thing to look at some of them. We will begin by examining the basic whole life policy.

Whole Life Insurance

What is a whole life policy all about? If you want a policy that you can keep for as long as you live and that will pay the face amount to your beneficiaries then this may be the plan for you. There is, however, a lot more to this policy. There are two types of whole life policies…participating and non participating. Participating whole life has cash values and earn dividends if the life insurance company performs efficiently. Dividends are not guaranteed. Non participating policies have cash values but pay no dividend. The premiums are level throughout for both types and so are the death benefits. There are many modifications to these policies.

Graded Premium Life

With this policy the premium begins much lower that the normal cost and increases each year for a specified period then it levels off and remains level for the rest of the life of the policy. The ultimate premium is usually a little more the it would have been had a normal whole life policy been taken out at the outset. The premiums increase for 5 or 10 years depending on the particular companies idea as to how the policy should work. This type of policy is purchased by one who likes the idea of whole life insurance but doesn’t want to put out the full premium at the outset.

Limited Payment Whole Life

This policy is designed that you pay only for a specific period of time but you still own your policy for your entire life. What the life insurance companies are doing here is packing the cost of the policy in the first 5, 10 or 20 years for example. You don’t pay after these periods but you still own your policy. You still have your cash values and you still earn dividends. Keep in mind that the cost for such policies are more than those of regular whole life insurance policies.

Single Premium Whole Life Insurance

The idea here is that you pay only once and the policy remains in force for as long as you live. The policy has cash values from very early and, if a participating policy, accumulates dividends.

There are other variations to the whole life policy. They are usually referred to as modified life policies. Some have a lower level premium for 5 or 10 years and a higher level premium thereafter. There are a few others that have a more complex premium structure but with a lower premium throughout. This premium is based on whether or not the company pays a dividend. As a result the owner of the policy may end up with a lower death benefit than anticipated, if the company doesn’t perform. The older and stronger companies, however, usually are able to keep the death benefit at the original level.

For more details:

http://www.lifeinsurancehub.net/whole-life-insurance.html

For more on how these policies are used:

http://www.lifeinsurancehub.net/wholelifeinsurance.html

Most of the major life insurance companies are in the practice of selling their products or policies through agents. Barring the no load term life insurance products that are sold directly to the public, the rest are almost all through agents. Some companies even make use of what are called captive agents, who are simply those agents who are bound by contract to only represent a single company. A vast majority of the companies that are providers of competitive term life insurance make use of independent agents.

These independent agents are free to represent several companies on their own discretion. These agents can thus help you to make a selection from a variety of products and companies so that you can effectively tailor a plan based on your requirements.

Keeping this in mind you should always begin by first obtaining an online quote for your life insurance. You can then go about selecting an independent agent. The reason to be careful before settling on a plan is due to the fact that there are so many competitive costing methods now in term insurance. The last thing you would want to do would be to miss out on a quote that could save you a bundle of your hard earned money.

Term life insurance is such that the costs vary depending on certain factors lie the age of the person who wants insurance and the term he wants it for. Due to this large variance in costs various companies have competitive term life insurance policies in an effort to tap the most customers. With the Internet as your able tool you can now easily make a complete survey of the market before zeroing in on the policy of your choice. In the end the fact remains that competitive term life insurance is most beneficial for the consumer because for him it means better quotes that are easier on his pocket.