The basic building block of financial planning is protection. By having enough life insurance, you are protecting your loved ones by ensuring that the financial resources are there to continue their lives without financial burden in your absence. It has been said that having life insurance is an honorable and selfless act. You are forward-thinking and taking responsibility for the financial future of the people you love.
It is my goal to help you find the best life insurance policy for your family.
Life Insurance Basics
There are many types of life insurance to fit individual needs and circumstances. The following are some of the basic types of life insurance available.
Term Insurance
The simplest form of insurance. You purchase coverage for a specific price for a specified period of time. If you die during that time, your beneficiary receives the value of the policy. There is no investment component.
Whole Life
Similar to term, but you purchase the policy to cover your “whole life” not just a set period of time. Premiums remain level throughout the life of the policy, and the insurance company invests at least a portion of your premiums. Some firms share investment proceeds with policyholders in the form of a dividend. Many companies will offer “a relatively low guaranteed rate of return,” but in reality, pay at a rate in excess of the guarantee.
Universal Life
You decide how much you want to put in over and above a minimum premium. The insurance company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can use against premiums or allow to build.
With some policies, sometimes called Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder.
With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account.
While Type II is meant to provide a partial hedge against inflation, it demands higher premiums as you get older than Type I.
A variation of a universal policy, often called universal variable life, allows policyholders to choose investment vehicles.