Life insurance types

Term life insurance

Term life insurance typically provides the largest amount of death benefit protection for a lower initial cost (depending on your health) than other types of life insurance. Term policies are temporary; they provide death benefits for a specific time period, or “term.” If you don’t die during the term, the policy ends. If the need for coverage continues, a new policy may need to be purchased.

Term insurance is relatively inexpensive because it lasts for a set number of years and because it only pays benefits at your death. It is usually not designed to provide you with benefits while you are alive. If you are in good health, lower-cost term insurance coverage could provide funds for a variety of financial needs at your death, including:

• Pay off your home mortgage
• Fund college educations for your children
• Pay estate taxes, costs and administration expenses
• Provide money for your spouse to pay other remaining debts and retire

Many people find their need for life insurance may not end at the time their life insurance expires. If you live past the term but your need for coverage continues, you may have several alternatives:

• Purchase a new policy (assuming you are still in good health)
• Convert the term insurance policy into a cash value policy (if your insurer allows and if it has a policy that meets your needs)
• Purchase several term insurance policies with different expiration dates. For example, you could have a 30-year term policy earmarked to provide funds to pay off your 30-year mortgage and a 20-year term policy designed to help pay college education costs for your two-year-old and five-year-old children.

Remember, each year as you get older, the cost of new life insurance coverage will become more expensive. If your health changes unexpectedly, you may no longer be insurable. It’s important to put your coverage in place sooner rather than later.

Whole life insurance

Whole life insurance helps to protect the financial futures of you and your loved ones while allowing you to build tax-deferred money within the policy, called cash value, to stay on track. Borrow against your policy to pay for unexpected expenses or supplement your retirement income.

Key features:

• Financial protection for your family upon your death
• Protection designed to last your entire lifetime
• Face amount increases or decreases available – depending on your changing needs and budget
• Tax-deferred cash value growth – means you don’t pay income taxes on it while it accumulates
• Access to your policy’s cash value using income tax-free loans and withdrawals
• Death benefit paid to beneficiaries free of federal income taxes
• Coverage may follow you if you leave your employer

Suitable for:

• Individuals looking for financial and estate planning tools
• Individuals looking for a death benefit in addition to a living benefit
• Individuals seeking a consistent premium payment schedule

Eligibility:

• Available through your employer’s benefits program
• Must meet employer’s eligibility requirements
• Optional spouse, domestic partner or dependent children coverage¹

Rate:

• No premium increases - regardless of health or age
• Premiums are conveniently deducted from your paycheck
   

¹ This varies by state and the life insurance plan offered by your employer.

Universal life insurance

Universal life insurance offers life insurance protection designed to last your entire life, not just for a specific period of time, and it provides potential cash values that grow tax-deferred. Universal life can be structured in a number of different ways, giving you flexibility in how premiums are paid, how death benefits are paid and how cash values may accumulate.

Fixed Universal Life

These policies provide death benefit protection and are designed with flexibility in mind. The policy owner can change the amount and frequency of premium payments and death benefit can be adjusted down or up (with evidence of insurability). Policy cash values are credited with interest at a rate declared by the insurance company which can change from year to year.

Indexed Universal Life

These policies provide death benefit protection and combine the flexibility of universal life with cash value crediting based in part on the performance of an equity market investment index (e.g. the S&P 500® index). Sometimes multiple indexes are used. The result is a flexible policy with enhanced potential for cash value growth.

Variable Universal Life

These policies provide death benefit protection and provide the flexibility of universal life insurance with cash value growth potential based on the investment performance of a group of variable investment options which are only available in variable universal life insurance policies issued by life insurance companies. Some of these options are conservative while others can be more aggressive. Because these policies allow the policy owner to choose from many variable investment options, they have more customizable investment potential.

VUL policies are subject to market and investment risk; account growth is not guaranteed and it will change in value. In addition, there is a possible loss of the principle amount invested.

Survivorship Universal Life

These policies provide death benefit protection and are designed to insure two people simultaneously (usually a husband and wife). They pay a death benefit when the last of the two insureds (the survivor) dies. Premiums and death benefits can be managed with the flexibility of traditional universal life policies and cash values can potentially be credited with growth in a variety of ways. Premiums on these policies are often less expensive because death benefits are paid when the second insured dies rather than the first insured.