Life insurnace info | Experior Financial 1

Term Life Insurance

Term life insurance provides a death benefit for a specified time period (e.g., 10, 20, or 30 years), paying beneficiaries if the insured person dies during the term. If the policy expires or the insured lives beyond the term, no payout occurs. It typically doesn't have a cash value component like permanent life insurance, making it more affordable.

Key Points:

Offers a guaranteed death benefit if the insured dies within the term.
Premiums depend on age, health, and life expectancy, and typically increase upon renewal.
Policies can last 10–30 years, with some options to convert to permanent insurance.
Generally the most affordable life insurance option.

Cost & Rates:

Term life is cheaper than permanent life insurance, with rates rising with age.
Example: A healthy 30-year-old male might pay $18/month for a $250,000 term policy, while the same coverage at age 50 could cost $67/month.

Types of Term Life Insurance:

Level-Premium Policy: Fixed premiums for the duration of the term.
Yearly Renewable Term (YRT): Renew annually with increasing premiums.
Decreasing Term Policy: Death benefit decreases over time, often used with mortgages.

Benefits:

Ideal for young, healthy individuals with growing families needing affordable coverage.
Provides financial security for dependents if the insured dies unexpectedly.

Term vs Permanent Life Insurance:

Term is more affordable but only provides a death benefit.
Permanent life insurance (e.g., whole life) lasts for life, includes a cash value component, but has higher premiums.

Conversion Option:

Some term policies can be converted to permanent coverage, often without medical underwriting, but premiums will be higher.

In conclusion, term life insurance is suitable for those seeking affordable coverage for a set period, while permanent life insurance is better for long-term protection and investment opportunities.

Whole Life Insurance

Whole life insurance provides lifelong coverage with a tax-free death benefit and a cash value component. Unlike term life insurance, which is limited to a specific period, whole life lasts for the insured's entire life, and the premiums are typically level, meaning they do not change over time. A portion of the premiums accumulates as cash value, which grows at a fixed interest rate and is tax-deferred. Policyholders can borrow or withdraw from this cash value, though loans or withdrawals reduce the death benefit.

Whole life policies offer financial security with a guaranteed death benefit, but they are more expensive than term life insurance. The cash value acts like a savings account, accumulating interest and offering flexibility in withdrawals, loans, or paying premiums. The death benefit can be adjusted with paid-up additions or dividends.

There are various types of whole life insurance, such as level payment, single premium, limited payment, and modified whole life. Participating policies pay dividends, while non-participating ones do not. Whole life insurance is often used for financial security, retirement supplementation, or business contingency planning.

The primary difference between whole life and term life is that whole life provides lifelong coverage and has a cash value, while term life only covers a set period and offers no cash value. While whole life insurance has higher premiums, it provides benefits like a predictable premium, lifetime coverage, and tax-free loans. However, the cash value grows more slowly compared to other policies, and there is limited flexibility to adjust premiums or death benefits.

Universal Life Insurance

Universal Life (UL) insurance is a permanent life insurance policy offering flexibility in premiums and death benefits. It also includes a cash value component that accumulates over time. Unlike whole life insurance, UL allows policyholders to adjust premiums and death benefits, making it potentially more affordable. However, performance of investments in the cash value can impact the policy, and if premiums are not paid adequately or if investments underperform, it may cause the policy to lapse or reduce the death benefit.

Key Takeaways:

UL provides lifetime coverage, a flexible premium structure, and the ability to accumulate cash value.
Cash value earns interest at a rate set by the insurer, with a minimum rate to protect the policyholder from losses.
Policyholders can borrow against their cash value without tax implications, but loans must be repaid, or they will reduce the death benefit.
Withdrawals from the cash value may be taxable, particularly if they exceed the amount paid into the policy.

How it Works:

Premiums consist of a cost of insurance (COI) and a savings component (cash value).
Premiums can vary based on the policyholder’s age, risk, and cash value accumulation.
As the insured ages, the COI increases, but if enough cash value is built, it can offset these increases.

Advantages:

Flexible premiums and possible changes to the death benefit.
Cash value growth potential, allowing policy loans.

Disadvantages:

Risk of policy lapse if cash value is insufficient or premiums are too low.
Returns on cash value are not guaranteed and depend on interest rates.
Some withdrawals are taxable, and the policy’s cash value is retained by the insurer after death.

Comparison to Other Policies:

Term Life Insurance: Provides coverage for a set period with no cash value.
Whole Life Insurance: Fixed premiums, guaranteed death benefit, and a cash value that grows at a fixed rate. UL offers more flexibility, while whole life provides stability.

Bottom Line: Universal life insurance is a flexible, permanent life insurance option that allows for adjustments in premiums and death benefits. However, policyholders need to carefully monitor the cash value to avoid lapsing or additional premium requirements.