Life Insurance

An important part of a sound financial plan is the purchase of life insurance.

There are two types of life insurance: term and permanent. The policy that is right for you depends on many factors including your budget, the amount of coverage needed, and the length of time you would like the coverage to last.

Term Life Insurance:

• The least expensive and simplest form of life insurance.
• Distinguishes itself from permanent life insurance in that the policy only lasts for a predetermined period of time.
• Periodic payments (premiums) are made to keep the contract in force. Usually the death benefit and the premiums are fixed at the time the contract is made.
• At the end of the policy, your payments and coverage both cease, but you may have to option to renew.
• Commonly purchased for the following reasons:
• Cover debts/liabilities (e.g., home mortgage, funeral costs.
• Maintain a spouse’s standard of living.
• Provide for one’s children until they are of age.
• Pay for schooling or daycare of one’s children.
• Fund a buy-sell agreement for a business.
• Protect a business from a key employee’s death.

Permanent Life Insurance:

• Offers coverage which continues for the duration of the insured‘s life.
• All policies fall under either whole life insurance or universal life insurance.
• An advantage is its accumulation of cash value. Each policy contains an interest-bearing cash value account, which the policy owner can put to a variety of uses:
• Tax Exemption – Whereas interest on other investments counts as taxable income, interest grows tax-free in life insurance cash value.
• Instant Liquid – A rarity among interest-bearing financial products, cash value life insurance allows access to cash without penalties.
• Versatility – Most of the reasons for life insurance have expired by the time a policyholder ceases employment. This frees the policyholder to cash in his policy/investment and use the proceeds to fund his retirement.

Whole Life Insurance:

• The simplest form of permanent life insurance.
• Traditional whole life insurance distinguishes itself from other permanent insurance primarily through the guarantees that it provides:
• The size of your death benefit and rate of cash value growth are guaranteed in your contract.
• Premiums are unchanging from start to finish.
• Whole life policies are designed to mature, usually when the insured reaches 100 years of age and upon maturation, the death benefit is paid and the policy terminates.

Universal Life Insurance:

• Characterized by its flexibility, transparency, and affordability.
• The death benefit, premiums, and cash value are perpetually adjustable in the hands of the policyholder.
• Universal life insurance is not nearly as economical a term life insurance, but it is significantly less than whole life insurance.
• Popular uses for universal life insurance include, but are not limited to:
• A tax-advantaged investment vehicle.
• Protecting a business (upon death of an owner).
• Protecting an estate against liquidation.
• Funding a retirement plan.