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Types of Life Insurance Policies

Term Life: Term life insurance usually provides the largest amount of insurance protection at the lowest initial cost. It lasts for a specific time period or “Term”. Because these policies are time specific and relatively inexpensive, term life policies are typically best for providing protection for large commitments or needs of known duration. For example, the parent of a young child may choose a 20 year term policy to provide protection until the child is on his or her own financially. Once the 20 year term policy is expired, the insurance coverage ends but the child isn’t dependent anymore, so the need has ended as well. Some insurance carriers will allow you to convert the term policy to a permanent policy.

Whole Life: This is the traditional life insurance that most people think of when they hear “permanent life insurance”. If you pay your premiums on time, your coverage remains in-force, and your policy builds cash value. While it has some advantages and is suitable for the right situations, it is generally more expensive and less flexible than other types of permanent policies.

Universal Life or UL: This type of policy can be a good match if you would like to earn interest within the policy while also providing some flexibility in premium payments and coverage amounts. Most UL policies earn a minimum interest rate, giving you some security about the interest earnings. You can choose your premium payment schedule, and depending on the policy, you may have the potential to earn more cash value depending on how much interest you earn.

Indexed Universal Life or IUL: Unlike other universal life policies, the interest rates of the indexed universal life or IUL policies are based on the performance of an independent financial index. The IUL policies may offer greater growth potential for the policies cash value than can be gained in other universal life policies, although there is some risk of getting a lower rate of return during a given time period.

The most popular indices used for IUL policies are the stock indices. While the interest earned is linked to the index performance, the premiums paid into the policy are not directly invested into any stock index. The indices performance is used with crediting the policy. IUL policies are commonly designed so that even if the index goes down in a given period, the account value does not lose value. These policies usually have a floor to prevent loses from index down turns and caps on the index gains.

Variable Universal Life or VUL: This policy allows you the greatest potential to build cash value compared to other permanent life insurance policies by investing part of the premiums in underlying investment options, also known as sub-accounts. These investment options may be invested in stocks, bonds, funds, or other securities. It also provides the flexibility of the universal life characteristics.

Since the cash value of your policy may be tied to the financial markets through the underlying investment options, this type of policy has the potential for returns higher than a universal life policy could provide, but it can also lose value if the investment options perform poorly.

This policy is designed for people who like to have an investment element, can fund the policy properly, and have the time (typically at least ten years) to allow their net premiums to potentially build cash value. VUL’s are a registered securities product. There are no guarantees, VUL’s are not insured or covered by the FDIC, again VUL’s can lose value.

Survivorship, or Second to Die: This single policy is designed to cover two people. It does not pay the death benefit until the second insured person passes, and can be less expensive than two separate policies. It is typically used in estate planning and to provide a legacy to a couple’s children after the last parent passes away. It is often used in estate conservation strategies, especially in conjunction with trusts as a way to help pay estate taxes; this can help preserve a couple’s estate so it can be passed onto the next generation or to help a charitable organization.

You have many goals in life. You want your family and your business to be financially secure to enjoy a comfortable retirement, and even leave a legacy for your children and grandchildren. No matter what your goals are, the unique tax benefits and features of life insurance can help you achieve them. That’s why life insurance can be one of the most important purchases you will make.

Riders can be added to life insurance policies to pay the premiums if you are disabled, to return the premium that you paid at the end of your term life policy, and to pay a higher death benefit if you passed away in an accident.

Planning for retirement has become the number one financial concern for most individuals. You may put money aside in 401(k)s and IRA’s, but still worry that you do not have enough savings opportunities to meet your long term goals. What other options are available to both help protect your family and supplement your retirement income? Life insurance may be the answer.

Many permanent life insurance policies can be designed to provide death benefit protection for your lifetime and the potential for cash value accumulation. Cash value is built over time through a combination of premium payments and interest – and grows on a tax deferred basis. The cash value can be partially withdrawn or borrowed to help provide an additional source of retirement income.

As an independent financial advisor I enjoy the fact that we have no allegiance to any one insurance or investment company. We are committed to maintaining the highest standards of integrity and professionalism in our relationship with you, our client. We endeavor to know and understand your financial situation and provide you with only the highest quality information, services, and products to help you reach your goals.