Life Insurance Plans
Overview
Life Insurance is no longer just a death benefit; it’s a financial strategy. Investing in a life insurance policy is a great way to start or add to your financial plan.
Modern policies often come with various living benefits that can provide financial support during the policyholder's lifetime. These living benefits may include options like accelerated death benefits, which allow policyholders to access a portion of their death benefit if they are diagnosed with a terminal illness, critical illness, or need long-term care. This can help cover medical expenses and other costs while the policyholder remains alive. Some policies offer cash value accumulation, accessed through policy loans or withdrawals. These living benefits make life insurance a versatile financial tool that can provide protection and support in various situations.
Term Life Insurance is a policy with a specified end date. The death benefit will only be paid if the insured dies during this period. This is the amount of money that will be paid to the beneficiary when the insured passes away, and it can be issued in various ways, such as a lump-sum payment or as annuities. Term life is typically sold in lengths of one, five, 10, 15, 20, 25, or 30 years. Coverage amounts vary depending on the policy but can reach the millions. Most people buy term life insurance long enough to cover their prime working years. They can help a surviving spouse or other beneficiary meet short-term financial needs if they die early.
Pros: It’s often the cheapest life insurance and sufficient for most people
Cons: If you outlive your policy, your beneficiaries won’t receive a payout
Best for: Most people. Term life insurance is a simple, low-cost policy that primarily aims to replace your income when you die.
Whole Life Insurance is a permanent policy that pays the beneficiaries a specific amount upon the insured's death. It also serves as a savings account where you can build a tax-deferred cash value that you can borrow against if needed. The accrued value depends on your premiums minus expenses. Whole life insurance typically lasts your entire life as long as you keep up with premiums. Generally, your premiums stay the same, you get a guaranteed rate of return on the policy’s cash value, and the death benefit amount doesn’t change.
Pros: It usually covers you for your entire life, builds cash value, and is relatively simple compared with other permanent life insurance options.
Cons: It’s typically more expensive than term life insurance, so if you're looking for affordable life insurance, you might want to explore other options.
Best for: Those who want a straightforward permanent policy and can afford the higher premiums.
Variable Whole Life Insurance is similar to Whole Life Insurance, except for the investment. The cash value component of variable life insurance is invested in assets like mutual funds; it may rise or fall in value. So, these policies carry more risk compared to other life insurance policies. You can often allocate a portion of your premium to a fixed account, which guarantees a rate of return to reduce overall risk.
Pros: a variety of investment options, provides the potential for higher returns, grows on a tax-deferred basis.
Cons: carries more risk than traditional WL; the investment can decrease due to market volatility.
Best for: Investors who can assume additional risk of the rise and fall of the market.
Fixed Universal Life Insurance is permanent life insurance that provides a cash value component and a death benefit. The money in a policyholder's cash value account can earn interest at a fixed rate, although the interest rate can fluctuate from the yearly policy anniversary. This policy type offers an interest rate guarantee, which limits your losses.
Cons: If you do not pay enough premium, the policy may lapse, loans and withdrawals will impact both the death benefit and policy surrender value
Best for: People who want permanent life insurance that can be flexible for future needs.
Pro: Flexible premiums, tax-deferred cash value, protection from market fluctuation
Indexed Universal Life Insurance (IUL) is a type of permanent life insurance with a cash value component and a death benefit. The money in a policyholder's cash value account can earn interest by tracking a stock market index selected by the insurer, such as the Nasdaq-100 or the Standard & Poor's 500. You may also have a fixed-rate account and can choose how much you want to go into each account. Because the insurance policy also builds up a tax-deferred cash value over the policy's life, the policyholder can borrow against it.
Pros: It’s typically less expensive than whole life insurance and can adapt to your needs as life changes.
Cons: The death benefit and cash value growth are not guaranteed.
Best for: Those with a higher risk tolerance who want greater control over their cash value investments.
Final Expense Insurance (burial) is often a good choice for people who find other insurance policies inaccessible. It can cover the funeral, burial, and final bills if you’re approaching the end of life and don’t have other resources to cover those expenses. The death benefit is guaranteed and typically ranges from $5,000 to $25,000.
Pros: A medical exam isn’t typically required, making it more accessible to seniors with pre-existing health conditions.
Cons: Coverage is capped at low amounts. If you die within two or three years of taking out your policy, your insurer may not pay the full death benefit.
Best for: People who want to cover their funeral, burial, and other end-of-life expenses.
Conclusion
For example, Whole life insurance is critical in creating a basis for long-term financial security. The policy owner can use its benefits throughout their life, and the policy is permanent as long as they pay the premiums. It goes without saying: start a Whole Life policy as soon as possible and leverage it as a cornerstone of your financial strategy throughout your life.