Life Insurance
What is Life Insurance, and why does one need it?
Life Insurance is a financial tool used for many different purposes. In the past, Life Insurance was only used for the sole purpose of funding ones Funeral or Final expenses. As time went on, Life insurance would be used to solve other financial concerns, such as Estate Taxes, Buy Sell Agreements, Estate planning needs, Business and Individual lending concerns,, Golden Handcuff's, Savings and Supplemental Retirement planning, Education Funding, and yes, Final Expense costs.
There seems to be as many Products on the market today as there are needs. Listed are some of the various products and their basic benefits.
Term Insurance
Term Insurance is and should be very familiar to all or most of us. A policy is purchased for a stated amount of death benefit and a stated amount or number of premiums to be paid. At the end, if you live, the contract is over and you have the option to renew for new stated premiums. Or you do not renew and the contract is over
Term insurance can be issued in many different forms, such as decreasing like that of a mortgage. One year term where a policy increases by age each year but the death benefits stay the same. And as described in the beginning, level term, which is a policy that has the same death benefits for 10, 20, or 30 years and the insured pays the same premium for that stated amount of time. Term insurance has the ability to perform like life policies, but there are some things it can not do which at that point you must purchase a different type of policy.
Universal Life and Whole Life Plans
Whole Life Plans:
These policies were designed as basic savings plans with a stated death benefit. These plans often paid dividends on top of some small interest. Typically at the end of 15 or 20 years the policy would have a cash value equivalent to that of the death benefit. Therefore, the insured would cash in the policy having outlived the policy.
Universal Life:
Originally conceived as a flexible benefit, interest bearing policy reflecting the cost of term insurance while offering open payment terms, this policy has stayed very popular among those in the financial industry for many reasons. First, the interest earned is generally higher than that of most savings accounts. The interest earned is tax free. The premiums are flexible and the amount can be less or greater than what the company shows. A popular use for this product was supplemental retirement savings and estate conservation
Variable Life:
Variable life offers all the same features and benefits as a universal life policy, except for the side savings is invested in Mutual Funds. Which obviously means, you could see strong investment returns, low life insurance costs; i.e. ...A great investment. Or adversely, a slow or declining market and a policy you now must pay more than originally thought to keep the policy from lapsing. Many companies have adopted a NO-Lapse feature to their plans for that reason. So, in the long run, a variable plan can be used as a tool to keep highly compensated employees, fund a portion of retirement, conserve your estate, help fund your child's education, and provide for your final expense needs.