Life Insurance – 3 Different Types of Life Insurance Policies
What is Life Insurance?
In this article, we’re gonna talk about the three most common types of life insurance. I realize that can be quite dry but since everybody has an alternate circumstance. one policy may be more favorable over another. Has your circumstance and your funds change advancing into different kinds of arrangements could bode well. Now in the article, we’re going to dissect the purpose use and the advantages of using a permanent or high cash value type insurance so stay tuned.
Types of Life insurance
-Term life insurance
-Universal life insurance
-Whole life insurance
Term Life Insurance
To start off let’s look at the most common type of life insurance that would be the term. Why is the term the most common well for one it’s the least expensive pure life insurance death benefit?. It tends to be utilized to ensure your family takes care of obligations perhaps to pay for arranged future costs. It may not be good for a lifelong policy, however. Now you can buy term for specific periods such as 5, 10, 15, 20, even 30 years and the downside determines this it gets more expensive as you age. It’s prohibitive for estate planning as the older you get premiums can be far too expensive. Most people drop their term coverage about retirement time as the costs are pricing them. Out of their policy, the term has no return of premium or cash value once you quit paying premiums. All past premiums are lost they’re gone.
you essentially must die to get a benefit. now you never own term insurance it’s more like renting you quit paying rent. You really don’t have anything to show for it so when do you want to use term insurance well. One of the most popular reasons is when you’re young and it’s inexpensive and you have a young family term it can be a great way to assure. Your family will be provided for in case of a tragedy or an end time death. Now only about one to two percent of all term policies ever end up paying a death benefit, which is why it’s relatively inexpensive. The chances of a young 20, 30 or 40-year-old dying are in the company’s favor by the time you hate your 60s and 70s term is extremely expensive and is usually dropped because of the costs or it’s not available because of health issues.
Now the next type is what’s called a universal life that came out in about the 80s. It was designed to build some cash value and help offset the cost of insurance at your age. The death benefit in aul is covered by guessing what term insurance and it’s not the cheap term insurance you hear advertised on the radio. It’s actually quite expensive term insurance. the difference is you can buy a term in increments like you know 10 or 20 or 30 years.
The hopes were the cash value would grow and as the cost of the term insurance increased. The cash value could help offset those costs. The downside was again the cost of insurance it had no cap to it. In other words, the insurance company could raise the term cost and for many. The cash value was eaten up rather quickly and by the time people retired the cost of insurance had escalated the cash value couldn’t keep up.
there are three types of ul or universal life there’s
-a fixed universal life
-a variable universal life
-an indexed universal life
A fixed universal life
A fixed Universal Life is loan fee driven every year it’s credited financing cost and it’s balanced dependent on the current monetary condition. As you can imagine with interest rates where they are currently. This type of universal life is very unattractive as the costs are much higher than even the potential earnings.
Variable or the Vul universal life
This kind of ul took the money esteem and basically let you put it in common supports which were called sub-accounts. the two problems with a variable are the risk of the market is all on you and if there are losses they directly impact your cash value and secondly the management fees charged for a variable policy are horrendous. it’s not uncommon to have three to five percent each year just in fees and this can eat up cash value and potential returns quickly.
if you have losses and also subtract fees and the cost of insurance many of these policies in a market downturn turned out to be a disaster. now the final piece to a variable ul is it still uses term insurance as the death benefit and again each year it’s more expensive and the older you get the worse it gets couple that with market volatility and well, in my opinion, the Vul can be one of the riskiest policies you can get.
indexed universal life or an eye ul
the last type of ul is called an indexed universal life or an eye ul. this is relatively new the first ones were issued in 1997. we’ve yet to see a full generation go with this type of policy. but the premises it’s still a ul it’s still term insurance and a cash value component. the difference is how the cash value is credited.
You just participate via the option. in an IUL we still have the issue of term insurance and the escalating costs. even in a year where the market goes down and your cash value isn’t affected due to market losses.
The real problem with the with an IUL is the ridiculous market return projections that many agents use. you should never trust an illustration that shows more than about 4% but so many of them are still using 6 7 8 9 %. those returns are fictitious and unlikely to even come close to that kind of a return.
The Whole Life
Now whole life is the oldest of all insurance it’s pushing about 200 years in longevity and it even goes back further. The other difference is how the insurance is paid for with each premium you own more and more of your death benefit. it’s not term insurance, in fact, it’s the only policy that’s that really isn’t term insurance.
The cost of the insurance is more expensive than the term and its price so that you will have it your whole life. it’s not made for short-term needs it’s made to actually die with it no matter how old you are. now, most whole life policies are designed to be owned at some point. in many cases that are about the time you retire this way you can quit paying premium yet you still have your policy growing and compounding the death benefit is owned and the cost of insurance is eliminated. this makes for a very efficient lifelong policy .now the downside is that it’s not made to be a short-term vehicle, the efficiency comes the longer you own it the cash value grows by the way of the dividend. okay, so that’s a quick and brief overview.
Now the cost of insurance in a whole life policy is basically spread out throughout your whole life. it never gets any more expensive remember in any of the US because of its annual renewable term insurance every year the cost of insurance gets higher. the older you get the more grey hair you get the worse it’s going to be. whole life never changes. if you buy a policy at 25 years old and you’re now 80 years old your cost of insurance doesn’t change it still as if you’re 25 years old.so it’s again designed just a lot differently and more importantly, it’s designed so that you can own it and owning your policy can be huge in retirement.
You know one of the most efficient ways to pass on an estate is through life insurance, however, you’ve got a plan for that ten fifteen-twenty years before retirement. now whole life’s not made for short-term needs that’s four-term if you just need to cover something for the next five to ten years some kind of a debtor to make sure that something gets paid for if you were to die then the term is exactly what you want and again most young couples term is the way to start. once you have the ability to save and put away some more money then the whole life can make a lot of sense.