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Life Insurance

Protect yourself against the financial consequences of premature death by using life insurance. However, choosing from the many types of life insurance that are available can be a difficult process. A few main categories are here to help you search for the right type of life insurance.

The cost and availability of insurance depend on factors such as age, health, amount and type of insurance you purchase. Before implementing a strategy involving insurance, it would be prudent to make sure that you are insurable.

Term life insurance

Term life insurance is the most basic and usually the most affordable. You can purchase a contract for a specified period of time. If you die within the time period of your contract, the insurance company will pay your beneficiaries the face value of your contract. This insurance can benefit your spouse, children or business.

You can buy a contract for any period between 1 and 30 years. Annual renewable term insurance usually can renew every year without proof of insurability. However, the premium may increase with each renewal. This options is useful if you can only afford a low-cost option.

Permanent life insurance

The other major category is permanent life insurance. You pay a premium for as long as you live, and upon your death, a pay out goes to your beneficiaries. This permanent contract typically comes with a “cash value” growth element. There are three main types of permanent life insurance: whole, universal, and variable.

Whole life insurance.

This type of permanent life insurance has a premium that stays the same throughout the life of the contract. Although the premiums may seem higher than the risk of death in the early years, they can increase in cash value.  You may be able to borrow funds from the cash value or surrender your contract for its face value.

Access to cash values through borrowing or partial surrenders can:

  • reduce the contract’s cash value and death benefit
  • increase the chance that the contract will lapse
  • may result in a tax liability if the contract terminates before the death of the insured
  • require additional out-of-pocket payments

Universal life insurance.

Universal life coverage goes one step further. You have the same type of coverage and cash value as you would with whole life, but with greater flexibility. Once cash value has grown, you may be able to vary the frequency and amount of your premiums. In fact, you could structure the contract so that the cash value covers your premium costs completely. Of course, it’s important to remember that altering your premiums may decrease the value of the death benefit.

Variable life insurance.

With variable life insurance, you receive the same death protection as with other types of permanent contracts. However, you have control over decisions for your cash value. You have the option of putting your money into stocks, bonds, or money market funds. The value of your contract has the ability to grow more quickly, but there is also more risk. If your financial instrument does not perform well, your cash value and the death benefit may decrease. However, some policies provide a guarantee that your death benefit will not fall below a certain level. You cannot change the premiums for this type of insurance. Moreover, you cannot change them in relation to the size of your cash-value.

Variable universal life

Variable universal life is another type of variable life insurance. It combines the features of variable and universal life insurance, with the ability to adjust your premiums or death benefit.

As with most financial decisions, there are expenses associated with life insurance. Generally, life insurance policies have contract limitations. Moreover, there are fees, charges, extra costs for optional benefits. Most policies have surrender charges during the early years of the contract if the contract owner surrenders the contract. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. FDIC does not guarantee life insurance nor does any other government agency. It is not guaranteed or endorsed by any bank or savings association.

You’ll have to pay tax if you have withdrawals of any increases. Also, you may be subject to surrender charges and a 10% federal income tax penalty if  you are younger than age 59½. Withdrawals reduce contract benefits and values. For variable life insurance and variable universal life, there is no guarantee on the financial instrument’s growth. Moreover, they can fluctuate with changes in index conditions. Thus, the principal may be worth more or less than the original dollar amount when the contract ends.

Variable life and variable universal life are sold by prospectus. Please consider the financial instrument’s objectives, risks, charges, and expenses before making your decisions. The prospectus, which contains information about the variable life or variable universal life insurance contract and the underlying financial instrument’s options, can be obtained from your financial professional. Be sure to read the prospectus carefully before making any final decisions.

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I can help you determine the right life insurance for your needs and life situation.  Let’s meet for a FREE retirement strategy consultation at my office. Call
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