Life Insurance Options

The Basics

There are two basic types of life insurance– Term Insurance and Permanent Insurance.

Think of it this way, if you are a renter, as long as you pay rent you can stay in your place. But, if you don’t, you get kicked out. This is an example of Term Life Insurance. If you pay your premium, you have life insurance. If you don’t, you lose it. Plus, it does not build up cash values.

Did you know that term insurance is the most expensive way to purchase life insurance? Why do you think insurance companies like term insurance? Because only 2% of term policies actually pay a claim.

Permanent Life Insurance is your best deal. It is with you for life and will build cash values when you fund it properly. Permanent Insurance is like owning a house. You build equity. Permanent Insurance builds cash value like a home builds equity. The more you fund the Permanent Policy, the more tax-free income you can get from the policy without dying. In addition, if you can’t make your premium payment in the future, the policy should be able to cover the premium cost from the cash values. If you’re looking for future tax-free income, you should be looking at a Permanent Life Insurance policy.

Permanent Life Insurance includes Whole Life, Universal Life and Second-to-Die Life.

Whole life
This is the kind of coverage your grandparents had. If you want guarantees, this might just be your type of coverage. It’s an old, solid way to build cash values through life insurance. But it’s the most expensive way to do it as well.

Universal Life
Universal Life Insurance is the most popular Permanent Life Insurance. It is typically less expensive compared to your old Whole Life products. Universal Life is split into three different types on the investment side.

1. Universal Life has fixed investment, typically the portfolio of the insurance company’s investments.
   
2. Index Life has a participation in an index fund. There should be several indexes to pick from. An example of an Index would be the S&P 500. An Index Life policy will allow you to participate in the growth of the S&P 500 without the risk of a downside loss in your policy. If you like the idea of investing and guaranteed against investment loss, this is the policy for you.
   
3. Variable Life is like having a portfolio inside your insurance policy. If you’re the kind of person that likes to move your money around into different investments or “chase the gains”, this could be the type of coverage for you
   

Second to Die Life
This type of insurance works for estate tax planning. It’s also a tool for retirees that want to spend all of their retirement assets, but still give their kids a tax-free inheritance.