The different types of life insurance and their common uses.
There a two basic kinds of life insurance term and permanent.
Term coverage is for a specific amount of time, usually 5,10,15,20, or 30 years.
With term insurance there are different benefits depending on the company chosen.
With some life insurance companies, they offer the ability to convert term insurance to permanent insurance at any time before the end of the term.
Also, some life insurance companies offer the ability to accelerate the death benefit (ABR) at no additional coast, in the event of a terminal, chronic, critical illness or injury. There are companies that only have the terminal (ABR).
When the term insurance expires the policy premium will be much higher to re-new.
There is no cash accumulation in term life insurance.
The older a person gets, the amount of time someone can purchase may decrease at age 56.
Some of the common reasons for term insurance are;
- If there is a young family and the budget is very tight.
- If there is a start–up business less than six years old.
- To cover a mortgage.
- To replace a high income.
Permanent life insurance includes traditional whole life, universal life, variable universal life, and index universal life. Permanent means the life policy will last at least to age 99 or to age 120.
Most permanent life insurance policies have the ability to accrue cash value.
The traditional whole life policy has dividend options that accrue cash value. The universal life policy has the ability to accrue cash value based on a cap. Variable universal life has the ability to accrue cash value based on stock returns and losses in the market.
Index universal life has the ability to accrue cash value based on linking the returns of an index, usually the S&P 500 and has a zero floor so there are no losses if there is a down year for the index. There is also an option to have the death benefit be level where the cash value is separate from the death benefit or an increasing death benefit where the cash value is added to the death benefit.
There are different interest crediting strategies for the index universal life policies, some with caps and participation rates and some without a cap, not all index universal life insurance policies offer a no cap option. Some index universal life policies have a lifetime income benefit rider where a stream of income can be taken via policy loans for a tax-free source of income.
Only some permanent life insurance policies will have all the accelerated death benefit (ABR)`s options included.
Some of the common reasons for permanent insurance are;
- Use of the cash value tax free for college funding for children.
- Supplemental tax-free income for retirement.
- Use of the cash value without penalty and tax-free for any reason, such as capital for starting a business.
- To cover a mortgage.
- To replace a high income.
- For key employees.
- Employee retention.
- Tax strategies.
- Protecting wealth.
If you would like to know more about how to use life insurance in different ways or a review of your current policy contact me and schedule a meeting at no charge.
The Importance of Reviewing and Updating Your Life Insurance Policies.
By Jason Bowers Jan 21, 2025. Life Insurance Agent, Retirement Consultant.https://calendly.com/wealthshieldconsultants/30min
Life insurance is one of the cornerstones of financial planning, providing protection for your loved ones in case the unexpected happens. However, many people purchase a policy and then forget about it, assuming that it will continue to serve their needs for the long haul. In reality, your life insurance policy is something you should review and update regularly to ensure it aligns with your evolving circumstances. In this blog, we’ll explore the key reasons why reviewing and updating your life insurance policies is essential, with a focus on the importance of considering Living Benefits, which cover terminal illness, chronic illness, critical illness, critical injury, and Alzheimer’s disease.
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- Life Changes and Evolving Needs
As your life progresses, your financial needs and responsibilities change. Major life events such as marriage, the birth of children, home purchases, career changes, and retirement significantly impact the amount of coverage you require. A policy that was sufficient when you were single may not meet your needs once you have a family to support. Regularly reviewing your policy ensures that you have the appropriate coverage for your current situation.
For example, after having children, you may want to increase your coverage to ensure that your family will be financially secure in your absence. Similarly, if your children have grown up and become financially independent, you may be able to reduce your coverage or reallocate funds to other areas of your financial plan.
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- Changes in Income and Debt Levels
Your income and debts are dynamic factors that can change significantly over time. If you’ve received a salary increase, taken on new financial responsibilities (such as a mortgage), or paid off a significant amount of debt, it’s important to reassess your life insurance policy. The coverage you initially purchased may no longer be enough to maintain your family’s lifestyle or pay off outstanding liabilities in the event of your death.
Conversely, if you’ve paid off significant debts or your income has increased, you may not need as much life insurance. Reviewing your policy helps you avoid overpaying for unnecessary coverage, which can free up funds for other financial priorities.
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- Living Benefits: A Modern Approach to Life Insurance
Traditionally, life insurance was meant to provide financial protection in the event of death. However, modern life insurance policies have expanded to include Living Benefits, which allow policyholders to access a portion of their death benefit while still alive in the event of certain qualifying conditions. These include:
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- Terminal Illness: If you are diagnosed with a terminal illness, you can access a portion of your life insurance payout to cover medical expenses, living costs, or other needs. This benefit can be a financial lifeline during difficult times, allowing you to focus on your health without worrying about the financial strain.
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- Chronic Illness: If you are diagnosed with a chronic illness that severely impacts your ability to perform daily activities, living benefits may provide financial relief. This can help cover costs related to long-term care or other specialized treatments.
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- Critical Illness: This benefit provides financial support if you’re diagnosed with a life-threatening illness, such as cancer, heart attack, or stroke. The funds can be used to cover medical bills, treatments, or recovery costs, easing the financial burden during a challenging time.
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- Critical Injury: In the event of a serious injury resulting from an accident, living benefits can provide funds for medical treatment, rehabilitation, or other expenses associated with your recovery process.
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- Alzheimer’s Disease: As Alzheimer’s disease becomes more common, some insurers now offer living benefits for those diagnosed with this progressive and debilitating condition. This coverage helps manage the expenses of long-term care and ensures that those with Alzheimer’s can access the care they need.
These benefits are particularly valuable because they provide coverage not only in the event of death but also during periods of severe illness or injury. As healthcare costs continue to rise and life expectancies increase, living benefits can offer peace of mind knowing that you’ll have support when facing a major health crisis.
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- Policy Terms and Conditions May Change
Insurance policies are not static. Life insurance providers periodically update the terms and conditions of their policies, which can impact your coverage. For instance, some insurers may introduce new riders or benefits, while others might adjust their premium structures. It’s important to stay informed about any changes that could affect the value of your policy.
If you’ve had the same policy for many years, it may be worth comparing it to current options in the market to see if there are better or more affordable alternatives. Insurance companies also adjust premium rates based on risk factors, which can sometimes result in lower premiums for long-term policyholders.
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- Tax Considerations
The Lifetime Income Benefit Rider (LIBR) is an optional add-on to permanent life insurance policies that guarantees a steady income stream for the policyholder’s lifetime, typically starting at age 60 or 65. It allows policyholders to access the cash value via policy loans, to provide tax free retirement income.
Key Features:
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- Guaranteed Lifetime Income: Provides income for life, starting at a chosen age.
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- Flexible Payout Options: Monthly, variable, or lump sum payments may be available. In summary, the LIBR ensures a reliable income stream in retirement while being tied to the policy’s cash value and death benefit.
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- Beneficiary Updates
Life events such as marriage, divorce, or the death of a loved one should prompt an update to your policy’s beneficiaries. It’s important to ensure that your life insurance beneficiary reflects your current intentions. For example, if you divorced and forgot to remove your ex-spouse as the beneficiary, your policy may inadvertently pay out to them instead of your children or new spouse.
By regularly reviewing your policy, you can confirm that your beneficiaries are up to date and that your policy will provide the intended financial support to your loved ones.
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- Peace of Mind
The ultimate goal of life insurance is to offer peace of mind, knowing that your loved ones will be taken care of if something happens to you. Regularly reviewing and updating your policy ensures that it continues to meet your needs and provides the financial security that you intended when you first purchased it. Knowing that your life insurance policy is aligned with your current life circumstances can alleviate stress and give you confidence in your financial plan.
Conclusion
Your life insurance policy is not a “set it and forget it” financial product. As your life changes, so should your coverage. Whether it’s due to life events, financial shifts, changes in the insurance market, or the need to update your beneficiaries, reviewing and updating your policy ensures that your loved ones will be properly protected. Adding Living Benefits to your policy can further enhance the security and flexibility of your coverage, providing essential support if you face a severe health issue or injury.
Make it a habit to reassess your life insurance needs regularly and consult with an insurance professional to make any necessary adjustments. Doing so will give you the peace of mind that your policy will serve you and your family when it’s needed most.
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https://calendly.com/wealthshieldconsultants/30minBy Jason Bowers Jan 21 2025