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  Annuities | Life Insurance | Long Term Care 

There are many different kinds of life insurance for many different kinds of protection needs.

Term is the most basic kind of life insurance. It provides affordable protection for a pre-defined period of time, so it is often used to serve temporary protection needs.

Permanent life insurance, on the other hand, is used when protection needs are more long term. There are many kinds of permanent life insurance, each of which has unique features that make it appropriate for certain situations. The two main categories of permanent life insurance are fixed and variable. Fixed life insurance products accumulate cash value at a pre-defined, guaranteed minimum interest rate or guaranteed cash value while variable universal life products are designed to provide an insurance benefit under your policy, but they do not guarantee a minimum rate of return. They will fluctuate up and down depending on performance of the applicable investment divisions.

(Note: Increasing protection requires additional underwriting and there is a required minimum premium necessary to sustain your policy.)

Survivorship life is a life insurance policy that covers two individuals and provides a life insurance benefit after the death of the last surviving insured. Survivorship policies can be whole life, universal life, or variable universal life.

The term versus permanent life insurance debate has gone on for years, as if it were possible to say that one type of coverage is all good, the other all bad. Sorry, it's just not that simple.

Term insurance is designed to help people purchase the protection they need when they can't afford to purchase all permanent insurance or when they only need coverage for a specific period of time. Term life insurance has a guaranteed death benefit but no cash value and the premiums will increase at pre-determined intervals such as 1 year, 5 years, 10 years and 20 years.

It is also very often the product of choice when protection needs may be high for a period of time, then drop back, such as when your family is growing. Term insurance can also be an effective way to supplement permanent insurance during high-need years, such as when family and other financial responsibilities are outpacing income.

In these situations, term coverage allows you to obtain crucial death benefit protection without breaking your budget. Also, if the coverage is convertible (the coverage can be "converted" to a comparable cash value policy, without the need to provide evidence of insurability), you can get the coverage you need today — with the ability to obtain permanent coverage in the future. In this respect, term insurance meets a valuable need.

The True Cost of Term Insurance
However, term insurance has its drawbacks. It certainly isn't right for all people or under all circumstances. Among its weaknesses, be aware of the following:

Let's say that you own $500,000 of term insurance. You've kept the coverage in force for ten years, and the policy expires at midnight on December 31. If you die at 11:59 on New Year's Eve, your beneficiary receives the full $500,000 in death benefit proceeds. However, if you die at 12:01 on January 1, your beneficiary receives nothing under the policy, since the contract has expired.

Purchasing term insurance is often compared to renting a house. When you rent, you get the full and immediate use of the house and all that goes with it, but only for as long as you continue paying rent. As soon as your lease expires, you must leave. Even if you rented the house for 30 years, you have no "equity" or value that belongs to you.

There is the very real danger of becoming uninsurable when the term coverage expires. While many term policies are convertible to permanent coverage, others may not be. Most of all, even if the coverage is convertible, there are time limits. If the policy is allowed to expire, you may be required to reapply. If you are found to be uninsurable at that time, you will be without coverage.

Since premiums increase at each renewal, the long-term cost of term can be burdensome. Many people buy term coverage when they're in their 20s because it seems more affordable when compared to a cash value life insurance policy with the same death benefit amount. By the time they're in their 40s, the coverage seems a bit pricey, as the rate goes up. In their 50s, the cost has generally outstripped the cost of permanent coverage. Finally, in their 60s, if not sooner, they drop the policy — not because they no longer need the protection, but because they usually can't afford it. Meanwhile, the person who may have paid more for that permanent policy in his or her 20s may still be paying the same premium. That's why the term policy's conversion privilege is so important. This valuable feature is usually available in the first few years of the policy, and allows you to convert to permanent insurance without submitting evidence of insurability. Converting to a permanent policy lets you "lock in" a fixed and level premium, and your coverage can never be canceled provided premiums are paid.

The Value of Permanent Life Insurance
Cash value life insurance is often the best long-term solution for many people. The reasons:

Despite higher initial premiums, cash value life insurance can actually be less expensive than term in the long run. Most permanent policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company. Many companies offer the option to apply current and accumulated dividend values towards payment of all or part of the premiums. If dividend values are sufficient, out-of-pocket premium payments may end or be reduced after several years, yet coverage can continue for life. So while premiums must be paid under both the permanent and term insurance plans, long-term out-of-pocket cost of permanent life insurance may be lower compared to the total cost for a term policy.

It can eliminate the problem of future insurability. Cash value life insurance does not expire after a certain period of time. Also, some policies contain guaranteed purchase options, which allow you to buy additional coverage at specified times, regardless of your health.

It builds cash value. This amount — part of which is guaranteed under many policies — can be used in the future for any purpose you wish. If you like, you can borrow cash value for a down payment on a home, to help pay for your children's education or to provide income for your retirement. (Note: Borrowing cash value from your policy requires the payment of loan interest and will affect your total policy values.) Plus, if you decide to stop paying premiums and surrender your policy, the guaranteed policy values are yours

What Types of Insurance are Available?

Life insurance falls into two major categories - term insurance and permanent insurance.

What is Term Life Insurance?

Term Insurance covers you for only a certain period of time (a "term"), not for your entire expected life. It pays death benefits only if you die during that period. This type of policy is purchased to cover certain needs that might disappear over time such as a mortgage, car payments, or short-term debts.

What is Permanent Life Insurance?

Permanent Insurance provides lifelong protection. As long as you pay the appropriate premiums, the death benefit will be paid. Permanent insurance also provides an opportunity to build cash values tax-deferred. These cash values may be accessed through tax-advantaged loans and withdrawals

Comparison of Term Insurance vs. Permanent Insurance

Benefit/Feature
Term
Permanent

Death Benefit
With payment of premium, death benefit is available for a specified period of time
With payment of premium, will provide a lifelong guarantee

Taxes/Treatment
Upon death of insured, death benefit passes federal income tax-free to the policy's beneficiary
Upon death of insured, death benefit generally passes federal income tax-free to the policy's beneficiary

Premiums
Lower premiums allow you to purchase higher levels of coverage at a younger age, when protection need is greatest
Typically, premiums more expensive than term, need to keep policy long enough or could be more costly

Cash Values
No cash value
Cash values may be accessed through tax-advantaged loans and withdrawals2


Types of Permanent Insurance
There are a variety of permanent insurance products from which to choose.

 

Kinds of Individual Life Insurance

Term life insurance

is the least expensive because it is not permanent (or "whole") life insurance. It only provides protection for the term (length) of the policy, which is where it gets its name.

Many employers provide a basic amount of term life insurance, and employees may have the option to purchase additional amounts. At the end of the term, the life insurance coverage goes away. And you may not need it anymore, if you bought it for a specific purpose - such as making sure your children would have enough money for college, and they've graduated, or making sure your spouse could continue to pay your mortgage, which is now paid off. You can buy as much protection as you need, for as long as you need it, and no more.


Group universal life insurance
is similar to term life, but has even more emphasis on the savings or investment part of the policy. It allows you to actively save more while you are protecting your family, because more of your premium goes toward building up the cash value. This has an effect on your premiums and on your cash value that you will want to discuss with a professional if you think that group universal life is best for you.

Many employers also may offer Accidental Death & Dismemberment (AD&D coverage) to help provide comprehensive protection. Aetna offers AD&D Ultra™, a leading-edge package of accidental death and personal loss coverages that sets the industry standard for family-friendly accidental loss protection.







Life Needs Assessment Calculator

Beneficiary Designations - Why You Must Name Someone Who Will Get Your Life Insurance Money
One of the most important things that you, as the owner of a life insurance policy, can do is to designate (that is, "name") the beneficiaries -- the people who you would want the money (called life insurance proceeds) to go to if something happened to you. While it seems simple, there are several important things to know about naming your beneficiary.

Do you know...
Many financial counselors recommend that people carry 5 to 7 times their annual gross income in life insurance. Supplemental term life is an affordable way to meet that goal.



 

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