Life Insurance

Insurance cover that serves two major purposes: (1) to substitute for the insured’s income if he or she dies, and (2) to qualify the insured for favorable tax treatment. The policy holders buy insurance cover from an insurance company, and pay specific periodic amounts (premiums) for the term (duration or life) of the policy. If the insured dies before this the term is completed, a guaranteed sum (the face amount of the policy) is paid to one or more named beneficiaries. If the insured survives the term then, depending on the type of the policy, he or she may receive the full or a part of the face amount of the policy.

For young families, a life insurance policy creates an ‘instant estate’ before they have enough time to accumulate other assets. Life Insurance provides liquidity to the named beneficiary (or beneficiaries) long before the deceased’s estate matters (which often call for substantial expense) are settled. There are four main types of life insurance policies are (1) Term life insurance, (2) Whole life insurance, (3) Universal Life Insurance, and (4) Annuity.

Term Life Insurance is designed to be affordable than Whole life and Universal Life, however Term life as stated in the name will end after the policy expiration. Some term policies can be converted to permanent insurance but at a much higher premium. Term is a good strategy for family’s looking for maximum coverage during the working years. Term Life is not good for cash accumulation but is great for pure coverage protection.

Whole Life Insurance is designed to be a permanent policy that will not end and will pay the beneficiary upon death a tax free payout. To buy the same amount of death benefit that you would on say a Term Life policy, a policy owner might pay five times as much for the premium. Whole Life can have a cash accumulation benefit, or be it can be used as a wealth asset transfer product. Final expense policies for people in their older years are popular because the policy will last them to their final days and will provide financial protection for burial expenses and other costs that they do not want to leave behind for their children and family members.

Universal Life Insurance is a hybrid of both Term life and Whole Life in that it is a permanent product, but not as expensive as typical whole life policy. Universal life is designed to be either a more affordable permanent policy option, or be used as a dual purpose product since cash accumulation is also an option. For cash accumulation strategies Universal life can be very attractive and comes in many forms such as Indexed Universal Life, Variable Universal Life, and traditional Universal Life.

Annuity is a contractual Life Insurance product that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase. Annuities can be good for those who are looking to protect large amounts of money from the market or those looking for a lifetime stream of income.

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