Life Insurance for Dummies

Written by Advanced Mutual Group

low cost whole lifeLife insurance is one of the few main ways of having a proper financial plan for a family. Most of the time, the families get confused as to either go for the fixed term policies or one of the whole life insurance policies that are available in the market. The shopper should resolve this confusion and understand what these plans are all about and how suitable they are for them.

There is no doubt that life insurance is an excellent decision for your future. It is better to be careful before you start requesting quotes, as this could open up a flood of agents who will start calling you. As these agents start to call, they will bombard you with the information that you don’t even understand.

Types of life insurance policies

There are different types of insurance policies:

  • Term life insurance

  • Variable life insurance

  • Indexed universal life insurance

  • Universal life insurance

  • Guaranteed issue life insurance

  • Accidental death insurance

  • Whole life insurance

Term life insurance

The term insurance provides a death benefit for a specified period of time. Mostly it comprises 10, 15, 20, or 30 years. Most of the term policies are for a specific time that is designed to have a level premium for that selected term. It is the cheapest choice in terms of the premium cost.

One can consider term insurance as a type of renting insurance. When we buy a term life insurance, we are sort of renting a home for some time. As renting is an excellent option for many people, that is why Term insurance is quite popular with a lot of people as it offers protection at a fraction of the cost.

Universal life insurance

Universal life insurance is quite known for its flexibility. Its flexibility is its major selling point as the Universal life policies have premium payments that can be adjusted in the life of the contract. As long as you happen to meet the minimum due amount to keep the contract, the death benefit stays the same.

On the other side, if you fall into a large sum of cash and want the cash value account to build up, you can put additional funds into the policy. A universal insurance policy is like a permanent term policy. It is there to keep the premiums as level as possible over the contract lifetime.

Variable universal life insurance

The variable universal life insurance is a policy with an investment component, and this component lets you allocate your cash value in stocks and bonds. For the risk-takers, the variable universal life insurance could be attractive if they want to maximize their cash value.

When you consider a variable life insurance policy, it would be a wise choice to speak with a financial advisor or have a very good understanding of the market. Most of the people who look for life insurance try to find out ways to avoid risk, so make sure that you understand fully before buying it.

Indexed universal life insurance

The Indexed universal life insurance is an alternative for whole life insurance. The indexed life policy has an investment component that lets you allocate all of your cash value to a stock market index. If there is positive index growth, then the cash value also grows, but there is a cap to this.

If the index returns are negative, you will not lose your cash value in the policy. The indexed universal life is a prevalent option, and it offers many of the upsides that a variable life insurance policy offers but without many of the risks.

Guaranteed issue life insurance

The guaranteed issue life insurance provides coverage with completing any type of medical underwriting. If you require life insurance and don’t want to get rejected, then such life insurance is a great option. The insurance companies will not deny the applicants as long as they pay the premiums.

As the insurance company is taking on more risk without fully underwriting the policyholder, therefore its insurance premiums are normally higher. In addition to that, some of the guaranteed issue life policies have benefit or return of premium clause that must be noted.

Accidental death insurancelife insurance term

This type of insurance provides a benefit to the beneficiaries of an insured in the event of death or a full/partial dismemberment that is resulted from a covered accident. Such policies will payout in addition to any other coverage that the policyholder may have in force like personal disability and work insurance.

The accidental death insurance coverage is an individual policy or sold through an employer’s benefits offerings. If death is occurred because of an accident, the benefit is paid in full. Many of the policies also pay out if there is a dismemberment incident.

Whole life insurance

Whole life insurance is a permanent type of insurance designed to provide coverage for the entire life of the policyholder. As long as he/she pays the premiums as scheduled, a whole life policy will remain in effect until its maturity.

For the starters, the term maturity can be defined as the point at which the death benefit is paid to the beneficiary or the beneficiaries. Like all other permanent policies, there is a cash-building investment component in whole life insurance.

Part of the premium, whether paid monthly, quarterly, or on an annual basis, is applied to the insurance cost. On the other hand, the other part is credited to the cash account. Additionally, if you were to pass away, your beneficiaries would receive the death benefit, and that will be tax-free.

The mortgage analogy

A whole life policy is quite similar to how the mortgage works. It is like when you purchase a home, and you commit to paying a mortgage payment monthly. This monthly mortgage pay resembles a whole life insurance premium. At the start, the premiums seem very costly because you are paying down interest on the loan.

The same way holds for the whole life policy. In the starting years, you might be paying your premiums, and very little can be seen in the cash-value account. You don’t need to be worried about this matter as the cash value, or the equity continues to grow over time.

Premiums

The premiums that are paid for a whole life insurance policy are normally higher than the ones paid for the term life, especially during the early years. A whole life insurance policy is quite cost-effective if it is particularly acquired at a young age.

Unlike the term insurance policies, various whole life insurance policies provide for level premiums. For many people, it is quite easy to budget their insurance cost when the premium payment remains level and fix for the life of the particular policy.

It is the amount of the premium that changes over the time that is applied to the insurance contract portion and the other portion that is applied to the investment. As the policyholder ages, the portion that goes towards insurance increases, because of this, there is an increase in the probability of paying a death benefit.

Different types of whole life insurance

The whole life insurance policies vary among different life insurance companies. Though there are six main types of whole life insurance policies:

  • Participating policy

This type of whole life policy pays a dividend, and this dividend reflects the policy owner’s share of the profit of an insurance company. The participating policy owner is the shareholder of the insurance company in the same way as he would have shared if the company’s stocks were owned.

It depends on the distribution method chosen by the company; the policyholder can take this distribution in cash and reduce the premium amount. He/she can purchase a higher coverage level or be paid a set interest amount. No company guarantees a profit, so the distribution of dividends is not guaranteed.

  • Non-participating Policy

A non-participating whole life insurance policy does not participate in the company’s earning, and therefore it does not pay a dividend. As we can expect that the premiums for such a policy are less expensive as compared to the participating policy.

  • Level premium

The level premium whole life policy offers the premiums that do not increase as long as the policy is there. Depending on policyholder’s age, the premium may be quite higher than any other type of permanent insurance during the first few years of the policy.

The premium is usually much lower in the later years as compared to other types of insurance. As the premium is level for a lifetime, therefore it reflects the average cost of insuring the individual over time.

  • Limited payment

A whole life policy with a limited payment option allows the policyholder to pay the premiums for a fixed number of years rather than paying for a lifetime. This type of option is better for those individuals who want permanent life coverage but don’t want payment for life.

Like the policy with a level premium, the limited payment premium amounts are skewed in order that the total amount that is paid overtime is equal to the amount that is to be paid over the lifetime of the policyholder.

  • Single premiumburial insurance for seniors

The single premium whole life policy is purchased with a lump sum single premium payment. Unlike different kinds of whole life policies, the single premium policy has immediate equity that can be borrowed or used for a mortgage or any type of debt.

The single premium whole life policy is more often used as an investment vehicle for estate planning or for additional retirement savings. This type of policy is also purchased instead of immediate annuities.

  • Intermediate premium

This type of whole life policy offers flexible premiums. The adjustment of premium every year is based on the insurance company’s cost to manage the policy. This type of management fee is called the “earning, mortality and expense” cost.

The insurance company estimates the management expense and then includes it in the premium that is charged to the insured. Due to the volatile nature of such charges, most of the insurance companies will guarantee the maximum amount above which premium will not rise.

Borrowing against your whole life policy

It is actually possible to borrow against the cash value of your whole life insurance policy, and also, there is a potential of tax-free income. By borrowing against the policy, you can be able to take money out of the policy tax-free, though you have to pay interest on the loan, which depends on the income tax bracket.

This also allows individuals that are younger than sixty years of age to access income for early retirement without paying any type of hefty taxes and penalties. The appealing fact for the very wealthy is that in some states, all or most of the money in a whole life insurance policy is exempt from creditors.

If you happen to be sued in one of these states, that money is basically viewed as protected money as it is intended to benefit somebody else, and that is the beneficiary.

Final word

When deciding whether whole life insurance actually works for not is to understand why you are buying the insurance. In brief, if you have a long-term insurance need and you are willing to supplement your retirement savings and longtime financial flexibility, a whole life policy is a great product.

Before buying whole life insurance, you have to map out exactly what the overall financial picture is before choosing this road. Once you have finalized to invest in whole life insurance, you should commit to it and understand its advantages and limitations so you can best utilize the policy.

You should also make sure to consult a financial professional who understands all your needs and concerns before finalizing this decision. As the whole life insurance policies are a long-term investment, your relationship with the insurance company will last a lifetime.

Going for a company with the highest ratings for financial stability and customer services is the key. It is better to do your homework and make sure that you are comfortable with the insurance broker. You should remember that the guarantees offered by whole life policies are as strong as the companies who make these policies. Compare us with Colonial Penn or Globe Life Insurance.  The average cost of a funeral is $8500.00.  We have Mutual of Omaha burial insurance with no waiting periods. We carry AIG burial insurance.

Hi, I’m Mitch Winstead I’ve been helping people with burial insurance for over 20 years.  We have top-rated carriers with the best rates.  If you have any questions or would like a quote with no obligations call our office today toll-free at 1-866-598-8170.  Our email is mitch@allstarseniorbenefits.com. Our website is www.advancedmutualgroup.com.  Our Facebook page is www.facebook/advancedmutualgroup.com

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Mitch Winstead Licensed Broker

About Advanced Mutual Group
About Advanced Mutual Group

We shop the life insurance market and do all the hard work for individuals across the nation to secure the best life insurance rates.

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