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Life Insurance Types and Explanations

Different Types of Life Insurance

What is Life Insurance?  Life Insurance is a contract between the owner and or the insured person with a life insurance policy to provide a death benefit in the instance when the insured passes away while the policy is in force.  The death benefit is an amount the client wishes to purchase and could be affected by dividends.  In force means the policy is active.  There are 2 types of life insurance.  Each type has different options and different applications.

Term Insurance

Term insurance is defined as a life insurance policy that can be in force as long as you make the premium payments for a period of time.  10, years, 20 years, 30 years, 40 years or to a particular age are popular types of terms.  There are many carriers that offer term insurance and they have similar underwriting requirements.  Carriers look at age, sex, and health.  Some will offer instant decisions and others will require a paramed (blood and urine samples) and phone interview.  Some carriers are more favorable to those applicants who carry extra weight, some have better rates for those with certain medical issus.  Some policies have conversion options- meaning that you can convert the term policy to permanent insurance.

Term is less expensive than any other life insurance but the downside is that in order for the death benefit to be paid out, the insured must pass away while the policy is in force.  There are policies that are for funeral expenses only and then there are term polices that range in death benefit of $100,000 up to $5,000,000 and in some cases even more.  Please contact Henry Mondschein at 860-965-4621 or email hmondschein@connectfg.com for quotes and more information.

Permanent Insurance

Permanent insurance is what it sounds.  It is an insurance that, depending on the type of permanent insurance, will last your whole life.  There are different types of permanent insurance broken down into 2 categories:  Universal life and Whole Life.

Universal Life is a very popular choice for many folks but if not handled properly, can fail in your later years.  The premise behind universal life is the "chassis" which is annually renewable term insurance.  Basically, the cost of insurance increases as a person gets older.  If someone purchases a universal life policy in their 30's or 40's, the premium is very affordable.  The insurance company designs a premium to cover the costs and add a component called "cash value" which is basically a savings account attached to the policy.  If the extra premium the insurance company invests grows, the cash value can grow.  As a person gets older, the cash value can help pay for the increased cost of insurance.  If the person lives into their late 70's or older, the cost of insurance can become a drag on the cash value.  

In order to offset the above issues, there are different types of universal life.  Variable Universal Life invests the extra premium in different investments in order to grow the cash value faster.  There are also Indexed Universal Life Policies that take advantage of a stock market index like the S & P 500.  Finally, there is Guaranteed Universal Life, which is designed to guarantee the policy to a certain age(age 70, 85, 90, 95, 100 and 120 are popular types).  These policies won't build cash value, but will guarantee a payout as long as inforce. 

Whole Life Insurance from a dividend paying company is a very attractive option for many clients.  First of all, as long as the policy is in force, it will pay a death benefit.  Secondly, the dividends can reduce premium payments, increase the death benefit or paid to the client.  The cash value grows each year and can be used  borrowed or taken from the polciy (there can be tax ramifications to removing cash value).  Whole life insurance has different payment options, single pay, pay over 10 years, 12 years, 15 years, 20 years, to age 65, to age 99 or age 100 are popular options.  Once the period of payment has been made, the policy is considered paid  and the dividends increase the death benefit or can be paid to the client.  For further information and quotes, please contact Henry Mondschein at 860-965-4621 or hmondschein@connectfg.com

For universal life carriers, we have access to many different carriers to shop price and options.  Whole life carriers we utilize include Mass Mutual, Penn Mutual and Guardian.