life insurance
Broken down into its simplest form, life insurance is a contractual agreement that pays a predetermined amount of money to a pre-established beneficiary following the death of the insured. On the opposite side of the spectrum, the money from a life insurance policy can be designated for the insured if he or she manages to live beyond a certain age. In this instance, life insurance can be viewed as a source of retirement income.
There are five categories of life insurance with which to choose from. The first four types of life insurance listed below are referred to as "cash value policies," in that they provide you with both a cash value account & a death benefit. They are as follows:
Whole Life insurance provides its holders with permanent coverage for all their dependents whilst simultaneously building a cash value account.
What does a Whole Life Insurance Policy offer?
- Flexibility allows policyholders to withdraw from the policy at any time.
- Policyholders able to receive dividends from his/her policy / use them lower his/her monthly insurance charges.
- Cash value account managed by insurance company.
- Pays a death benefit to assigned beneficiary.
- Offers a fixed premium that will not rise if you make your monthly payments.
What doesn't it do? *
- No premium flexibility
- No face amount flexibility
- No account flexibility for investing in anything such as stocks/bonds etc.
* Basically, a Whole Life insurance policy is NOT flexible
Variable Life insurance offers its holders permanent protection combined with a certain degree of account flexibility for the more risk-oriented policyholder. (Variable Life allows policyholders to borrow from the policy throughout his/her lifetime if deemed necessary)
What does a Variable Life Insurance Policy offer?
- Tax-free, low-risk cash accumulation.
- Pays a predetermined death benefit to an assigned beneficiary.
- Allows policyholder to borrow from the policy during their lifetime should the need arise.
- Death benefit varies in relation to the fund returns of the cash value account.
What doesn't it do?
- Although providing a certain degree of flexibility, variable life offers no premium flexibility.
- Similarly, variable life offers no face amount flexibility.
- No guarantee to the actual amount of cash value available during your lifetime.
Universal Life insurance provides its policyholders with a type of permanent protection geared towards their dependents & is considered to be even more flexible than either Variable or Whole life insurance.
Benefits of Universal Life:
- Flexibility - Policyholder sets the level of life insurance & death benefit & premium payments can be adjusted based on your situation.
- Tax-Free death benefit - In accordance with the current tax laws that govern individual life insurance, the proceeds of the life insurance policy (death benefit) is paid in full to the beneficiary, tax-free.
- Tax-Deferred account value growth - Account value can increase due to higher interest rates. (Dependent on current interest rate)
Universal Variable Life insurance provides its policyholders with a greater degree of flexibility and control of their cash value account policy features than any other form of life insurance. (As the name suggests, it is more or less a combination of the Variable life / Universal life features)
Universal Variable Life benefits include:
- Premium & death benefit flexibility.
- Potential to increase cash value account.
- Withdraw funds or borrow from the policy at any time.
Universal Variable Life insurance 'cons' include:
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One of the more expensive forms of permanent life insurance.
- Success of the policy depends on the choice of investments. (It is possible that your account could lose value based on poor investment choices)
- Policyholder is responsible for managing the underlying investment accounts.
The fifth and most common life insurance policy is:
Term Life insurance is the easiest, cheapest and most common life insurance policy. It doesn't offer a cash value account, and it is strictly limited to insurance. The death benefit & the policy limit are the same for a term life policy. The only function of a Term Life insurance policy is to pay a predetermined sum of money to a designated beneficiary following the death of the policyholder. The value of the death benefit & the value of the policy limit will be the same. I.E, if you have a $200,000 policy, it's going to payout a $200,000 death benefit. Those people who are more or less interested in a generic form of life insurance without much flexibility or involvement should consider Term Life insurance.
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What's the difference between Life Insurance & > LONG TERM CARE LIFE INSURANCE
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