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Why Get Life Insurance?
The first benefit to life insurance is ensuring that your family and loved ones are able to continue to receive the financial freedom that they are accustomed to.
Throughout the policy’s term, you pay a regular premium. In the event of your death, this premium is paid out to the people named in your policy. This amount is gifted free of income tax.
Life insurance may also have cash benefits while you are living. In some policies, a portion of your premium goes into a cash reserve and builds on a tax deferred basis. You can then use this money – called cash value – to help with costs such as education or retirement.
Types of Life Insurance
Term Life Insurance
With term life insurance, you pay a premium for a period of one to thirty years. If you die during that time, the insurance is paid to the beneficiary(ies). If you are still alive at the end of the policy, you may in some cases renew at a higher price, reflecting your older age.
Term life insurance is initially the most affordable option, as it offers a low premium early on, but it may increase over time. This type of policy also does not build cash value and in some cases you may not receive a return of your premium if unused by the end of the term.
Whole Life Insurance
Whole life insurance is guaranteed to provide life-long protection as long as you pay your premium, which is set at a fixed rate and will never increase.
These policies are designed and priced for you to keep them for life. If you’re not sure about committing to that, then term life insurance or return of premium insurance may be better options.
Survivorship Life Insurance
Survivorship life insurance (also known as joint and survivor insurance or second to die life insurance) insures the lives of two people, typically a husband and a wife.
Survivorship life insurance is typically more affordable than two separate policies and is generally available as whole or universal policies. The death benefit is not paid to the beneficiary until the death of the second insured, as it is designed to pay or assist paying for estate taxes.
These policies are popular for wealthy individuals who are estate planning. Careful planning by your tax and legal counsel, coupled with a properly structured insurance policy, can help you preserve net worth for heirs.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance. While whole life insurance guarantees lifetime protection, universal life does not. Fortunately, there are now universal life policies where you can add this feature. We are happy to discuss this option with you.
If you don’t intend to keep the policy for the rest of your life, it may be better to consider term life insurance or return of premium insurance.
Return of Premium Life Insurance (ROP Term)
Return of premium life insurance is a newly introduced term policy that provides both death benefit protection and a return of premium. It is an answer to one of the greatest objections to term life insurance: “I am probably not going to die, and my money will have been wasted.”
If you keep your policy for the term period, at the end of that time the company returns the entire premium that you paid for the insurance. There are also some partial premium returns if you cancel your policy before the end of the term. This return of premium is considered income tax free.
