Monday, 16 February 2015

Permanent Types of Life Insurance

Whole Life Insurance- Permanent insurance. Death benefit is in force for the entire lifetime of the insured. Typically, permanent life insurance matures at age 100 at which time the insured, if still alive, will receive the full value of the policy. Premiums can be several times higher than premiums you would initially pay for the same amount of term insurance, but they typically become smaller in the insured's later years. Whole life policies develop cash values which may be available to the policy owner. This cash value can be used as collateral for a loan or borrowed from the policy. If borrowed, interest is charged at a specified rate in the policy. Any money owed on a policy loan is deducted from the benefit at the insured's death. If the policy is surrendered for cash, the loan is deducted from the cash value.

Universal Life Insurance- Also permanent insurance, but with an investment component. The policy owner can vary the timing, amount of premiums, and death benefit. Premium payments must be frequent and large enough to generate sufficient cash value. The cash value is used to pay the monthly policy expenses, but if there is not enough the policy terminates. Withdrawals are permitted from the cash value account. The cash account is considered the investment component and the funds are invested in stocks, bonds, and money market mutual funds chosen by the insurance company

Variable Life Insurance- Permanent insurance with a a riskier investment side to it. The death benefit and the cash value of the policy fluctuate according to the investment performance of a separate account fund. The main difference from universal life insurance is that you may select the types of investment vehicles as well as determining the investment amount, thus bearing more of the risk There are two types of variable life insurance - variable whole life and variable universal life

With variable whole life the death benefit may increase or decrease depending on investment performance, but will not fall below the guaranteed minimum if the required premium is paid. With variable universal life the policy owner determines the timing and amount of premiums and death benefit. The owner also directs investment of the cash value and assumes all the investment risk. Typically there is no guaranteed minimum death benefit.

Survivorship or Second-To-Die Life Insurance- A permanent policy that covers the lives of two people. The death benefit is payable when the last of the two insured’s dies. Premiums are generally less than two separate policies. Whole life, universal life, and variable life all offer Survivorship policies. Typical uses for these are: to pay estate taxes, protect dual incomes, and key person business insurance


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