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- Types of Life Insurance
premiums, you are able to lock in coverage at a level premium rate. Part of that premium accrues as cash
value. As the policy gains value, you may be able to borrow up to 90% of your policy's cash value tax-free.
The main drawback of whole life is the premium inflexibility, and the internal rate of return in the policy may not
be competitive with other savings alternatives. Riders are available that can allow one to increase the death
benefit by paying additional premium. The death benefit can also be increased through the use of policy
dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time.
Premiums are much higher than term insurance in the short-term, but cumulative premiums are roughly equal
if policies are kept in force until average life expectancy.
Cash value can be accessed at any time through policy "loans". Since these loans decrease the death benefit
if not paid back, payback is optional. Cash values are not paid to the beneficiary upon the death of the insured;
the beneficiary receives the death benefit only. If the dividend option: Paid up additions is elected, dividend
cash values will purchase additional death benefit which will increase the death benefit of the policy to the
named beneficiary.
TheLifeInsuranceGroup.com- Independent General Insurance Agency,
Licenced in the state of Maryland only.
PO BOX 26537 | Baltimore, MD 21207
Main Line: 410-456-5356 | Fax: 410-448-1390
Licenced in the state of Maryland only.
PO BOX 26537 | Baltimore, MD 21207
Main Line: 410-456-5356 | Fax: 410-448-1390
| We are licensed Maryland Life and Health Insurance Agents Proudly serving Proudly serving Baltimore Maryland and surrounding counties. Allegany County, Charles County, Prince George's County, Anne Arundel County, Dorchester County, Queen Anne's County, Baltimore City, Frederick County, St. Mary's County, Baltimore County, Garrett County, Somerset County, Calvert County, Harford County, Talbot County, Caroline County, Howard County, Washington County, Carroll County, Kent County, Wicomico County, Cecil County, Montgomery County, Worcester County |
Universal Life is similar to whole life with the added benefit of potentially higher earnings on the savings component. Universal life policies are
also highly flexible in regard to premiums and face value. Premiums can be increased, decreased or deferred, and cash values can be
withdrawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually
at least 4%. You'll receive an annual statement that details cash value, total protection, earnings, and fees.
Universal life policies guarantee, to some extent, the death proceeds, but not the cash function - thus the flexible premiums and interest
returns. If interest rates are high, then the dividends help reduce premiums. If interest rates are low, then the customer would have to pay
additional premiums in order to keep the policy in force. When interest rates are above the minimum required, then the customer has the
flexibility to pay less as investment returns cover the remainder to keep the policy in force.
And universal life has a more flexible death benefit because the owner can select one of two death benefit options, Option A and Option B.
• Option -A- pays the face amount at death as it's designed to have the cash value equal the death benefit at age 95.
• Option -B- pays the face amount plus the cash value, as it's designed to increase the net death benefit as cash values accumulate.
Example for Option -A- for Universal Life Insurance Example for Option -B- for Universal Life Insurance
The universal life policy addresses the perceived disadvantages of whole life. Premiums are flexible. The internal rate of return is usually higher
because it moves with the financial markets. Mortality costs and administrative charges are known. And cash value may be considered more
easily attainable because the owner can discontinue premiums if the cash value allows it.
The disadvantages to this type of life insurance include higher fees and interest rate sensitivity. Universal policies include up-front fees as well
as ongoing administrative fees totaling as high as 5% to 7% of your premiums. You may also find your premiums increasing when interest
rates decline.
Term Insurance Term life insurance or term assurance is the original form of life insurance and is considered to be pure insurance protection
because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life, and variable universal life.
Term life insurance provides coverage for a limited period of time, the relevant term. After that period, the insured can either drop the policy or
pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary.
Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.
Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the
premiums are up to date and the contract has not expired, and does not expect a return of Premium dollars if no claims are filed. As an
example, auto insurance will satisfy claims against the insured in the event of an accident and a home owner policy will satisfy claims against
the home if it is damaged or destroyed by, for example, an earthquake or fire. Whether or not these events will occur is uncertain, and if the
policy holder discontinues coverage because he has sold the insured car or home the insurance company will not refund the premium. This is
purely risk protection.
Declining Balance Term insurance, a variation on this theme, is often used as mortgage insurance since it can be written to match the
amortization of your mortgage principal. While the premium stays constant over the term, the face value steadily declines. Once the mortgage is
paid off, the insurance is no longer needed and the policy expires. Unlike many other policies, term insurance has no cash value. In this sense,
it is "pure" insurance without any investment options. Benefits are paid only if you die during the policy's term. After the term ends, your coverage
expires unless you choose to renew the policy. When buying term insurance, you might look for a policy that is renewable up to age 70 and
convertible to permanent insurance without a medical exam.
Variable Life generally offers fixed premiums and control over your policy's cash value. Your cash value is invested in your choice of stock,
bond, or money market funding options. Cash values and death benefits can rise and fall based on the performance of your investment
choices. Although death benefits usually have a floor, there is no guarantee on cash values. Fees for these policies may be higher than for
universal life, and investment options can be volatile. On the plus side, capital gains and other investment earnings accrue tax deferred as long
as the funds remain invested in the insurance contract.
Endowments are policies in which the cash value built up inside the policy, equals the death benefit (face amount) at a certain age. The age
this commences is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either
whole life or universal life because the premium paying period is shortened and the endowment date is earlier.
Glossary
Riders: Amendment to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some
feature desired by the policy owner.
Joint life: Either a term or permanent policy insuring two or more lives with the proceeds payable on the first death.
Survivorship life or second-to-die life: Life insurance policy insuring two lives with the proceeds payable on the second (later) death.
Single premium whole life: Life insurance policy with only one premium which is payable at the time the policy is issued.
Modified whole life: A whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the
remainder of the policy.
Face Value: The original death benefit amount.
Convertibility: Option to convert from one type of policy (term) to another (whole life), usually without a physical examination.
Cash Value: The savings portion of a policy that can be borrowed against or cashed in.
Premiums: Monthly, quarterly, or yearly payments required to maintain coverage.
Beneficiary: The individual(s) or entity (e.g., trust) that is designated as benefit recipient.
Paid Up: A policy requiring no further premium payments due to prepayment or earnings.
also highly flexible in regard to premiums and face value. Premiums can be increased, decreased or deferred, and cash values can be
withdrawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually
at least 4%. You'll receive an annual statement that details cash value, total protection, earnings, and fees.
Universal life policies guarantee, to some extent, the death proceeds, but not the cash function - thus the flexible premiums and interest
returns. If interest rates are high, then the dividends help reduce premiums. If interest rates are low, then the customer would have to pay
additional premiums in order to keep the policy in force. When interest rates are above the minimum required, then the customer has the
flexibility to pay less as investment returns cover the remainder to keep the policy in force.
And universal life has a more flexible death benefit because the owner can select one of two death benefit options, Option A and Option B.
• Option -A- pays the face amount at death as it's designed to have the cash value equal the death benefit at age 95.
• Option -B- pays the face amount plus the cash value, as it's designed to increase the net death benefit as cash values accumulate.
Example for Option -A- for Universal Life Insurance Example for Option -B- for Universal Life Insurance
The universal life policy addresses the perceived disadvantages of whole life. Premiums are flexible. The internal rate of return is usually higher
because it moves with the financial markets. Mortality costs and administrative charges are known. And cash value may be considered more
easily attainable because the owner can discontinue premiums if the cash value allows it.
The disadvantages to this type of life insurance include higher fees and interest rate sensitivity. Universal policies include up-front fees as well
as ongoing administrative fees totaling as high as 5% to 7% of your premiums. You may also find your premiums increasing when interest
rates decline.
Term Insurance Term life insurance or term assurance is the original form of life insurance and is considered to be pure insurance protection
because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life, and variable universal life.
Term life insurance provides coverage for a limited period of time, the relevant term. After that period, the insured can either drop the policy or
pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary.
Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.
Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the
premiums are up to date and the contract has not expired, and does not expect a return of Premium dollars if no claims are filed. As an
example, auto insurance will satisfy claims against the insured in the event of an accident and a home owner policy will satisfy claims against
the home if it is damaged or destroyed by, for example, an earthquake or fire. Whether or not these events will occur is uncertain, and if the
policy holder discontinues coverage because he has sold the insured car or home the insurance company will not refund the premium. This is
purely risk protection.
Declining Balance Term insurance, a variation on this theme, is often used as mortgage insurance since it can be written to match the
amortization of your mortgage principal. While the premium stays constant over the term, the face value steadily declines. Once the mortgage is
paid off, the insurance is no longer needed and the policy expires. Unlike many other policies, term insurance has no cash value. In this sense,
it is "pure" insurance without any investment options. Benefits are paid only if you die during the policy's term. After the term ends, your coverage
expires unless you choose to renew the policy. When buying term insurance, you might look for a policy that is renewable up to age 70 and
convertible to permanent insurance without a medical exam.
Variable Life generally offers fixed premiums and control over your policy's cash value. Your cash value is invested in your choice of stock,
bond, or money market funding options. Cash values and death benefits can rise and fall based on the performance of your investment
choices. Although death benefits usually have a floor, there is no guarantee on cash values. Fees for these policies may be higher than for
universal life, and investment options can be volatile. On the plus side, capital gains and other investment earnings accrue tax deferred as long
as the funds remain invested in the insurance contract.
Endowments are policies in which the cash value built up inside the policy, equals the death benefit (face amount) at a certain age. The age
this commences is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either
whole life or universal life because the premium paying period is shortened and the endowment date is earlier.
Glossary
Riders: Amendment to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some
feature desired by the policy owner.
Joint life: Either a term or permanent policy insuring two or more lives with the proceeds payable on the first death.
Survivorship life or second-to-die life: Life insurance policy insuring two lives with the proceeds payable on the second (later) death.
Single premium whole life: Life insurance policy with only one premium which is payable at the time the policy is issued.
Modified whole life: A whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the
remainder of the policy.
Face Value: The original death benefit amount.
Convertibility: Option to convert from one type of policy (term) to another (whole life), usually without a physical examination.
Cash Value: The savings portion of a policy that can be borrowed against or cashed in.
Premiums: Monthly, quarterly, or yearly payments required to maintain coverage.
Beneficiary: The individual(s) or entity (e.g., trust) that is designated as benefit recipient.
Paid Up: A policy requiring no further premium payments due to prepayment or earnings.
|
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| The Life Insurance Group |