People use insurance to protect the assets they own and the loved ones they leave behind. The main concept of insurance is spreading the risk.
One of the most important lines of insurance is life. Life insurance came about in ancient Rome, where burial clubs were formed to cover the funeral expenses of its members, as well as help survivors monetarily. We have come a long way in the life insurance industry since ancient Rome but one thing remains the same. What type of insurance is best for me and my budget? The three basic types of life insurance is term, whole life and universal life. To figure out which one is the best one for your needs, you need to know the basics of each.
The first and the most basic type of life insurance is term insurance. Term insurance provides life insurance coverage for a specified term of years in exchange for a specified premium. The policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else. The three key factors to term insurance is the face amount or the amount paid when the insured dies. The premium paid which is what the insured pays on a monthly or yearly basis and the length of coverage. The way I look at term insurance is it is much like leasing a car. You pay monthly and when the lease is up, you walk away.
The second type of insurance is whole life insurance. Whole life insurance provides a level premium and it builds up cash value guaranteed by the insurance company. The great thing about whole life is guaranteed death benefits, guaranteed cash values and fixed and known premiums. The cash value can be accessed at any time through policy loans and are received income tax free. The loans decrease the death benefit if not paid back so payback is optional. Whole life insurance policies are actually issued with a termination date built in. This date is usually on your 100th birthday. So, if you aren’t dead by 100, the policy is terminated and you are given the cash value. The cash value on the termination date will be the face amount of the policy.
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The third and final basic type of life insurance is Universal. Universal life insurance is a relatively new insurance product intended to provide permanent insurance coverage. There are five major features with universal life:
n Flexibility -- you decide the amount of life insurance, benefit, and premium payments.
n Security -- protect your loved ones from financial hardship should the unexpected occur.
n Death benefit -- life insurance proceeds are generally income-tax free to the beneficiary.
n Guaranteed interest rate -- earn while you protect your family. The interest rate at which the account value grows is guaranteed never to drop below a defined level.
n Cash value growth is tax deferred. The growth in cash values is tax-deferred under current federal income tax law.
With all these features and benefits, universal life is unique in the insurance world.
No one wants to leave their family unprepared for the future. Planning today can protect the promise of your family’s tomorrow. Life insurance is designed to protect your family and other people who may depend on you for financial support. If you die and lose your income, the people that are dependent on your financial support will lose that income, so life insurance can help cover some or all of that loss depending on the policy you choose. Knowing the choices and types of policies like the one’s discussed above can make that choice a little easier.
Michael Miele, a benefits specialist for MGA insurance in Lakewood Ranch, can be reached at email@example.com or (941) 907-3828.