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Life Insurance 101

Types of Life Insurance

There are numerous types of Life Insurance contracts in existence today; including Term Insurance, Universal Life (UL), Adjustable Life (AL), and Whole Life (WL). There are so many policies today that fit many different scenarios of life (Please remember that all insurance guarantees are based on the claims paying ability of the issuing company). The following is a brief description of the above mentioned contracts:

  • Term Insurance-main premise behind Term Insurance is getting a large amount of death benefit for a specific period of time at a reasonable premium. The time periods can range from 1 year to 30 years at a fixed premium. The longer the term the higher the premium.
  • UL-this is a hybrid Life Insurance contract that incorporates some of the attractive features of Term Insurance as well as some of the benefits of Whole Life Insurance. The premium will be more than Term Insurance but less that Whole Life. These contracts often accumulate cash value and can last anywhere from a few years to and entire lifetime. One additional nice feature is that many of these contracts can be paid up in a condensed format.
  • AL-this is also a hybrid Life Insurance contract that is very similar to UL with minor differences.
  • WL-this is the “Cadillac” Life Insurance contract which offers the richest benefits and highest premiums. This policy can also be paid in a condensed format and it often incorporates an attractive yield for cash value accumulation.

Death Benefits

The amount of death benefit a consumer chooses should be based on one’s income, asset level and desired objectives. For the average middle income 25-45 year old family, this should primarily be based on income of roughly 10-20 times annual salary. Often times you would subtract Group Life and other assets from this figure. For the 55+ demographic, this death benefit would be derived from either pension replacement values, charitable or family desires or estate planning needs. Reach out to us if you need more information on this topic.

Group Life versus Individual Life

The main difference between Group Life and Individual Life is portability. Basically this means Group Life stays with your employer (for the most part) and Individual Life can remain with you as long as you desire it. We suggest having an amount of insurance on an individual basis that is large enough to meet your required obligations. Group Life Insurance is a good vehicle which does not require underwriting and can be obtained at a low cost.

Underwriting for Life Insurance

In order to qualify for most Life Insurance contracts (non-group), the applicant most complete the underwriting process. This can include anything from a simple questionnaire to a full blown medical exam. The process is dependent upon the face amount of the contract. Click here and ask us for a step-by-step guide to underwriting in the ‘Reason for Contact’ box.

Riders

Many Life Insurance contacts can contain a wide variety of additional riders (coverage enhancements) which include additional insured’s, waiver of premium (if disabled), early paid-up options, long term care agreements, and dividend options among many others. All these riders will add additional costs to the premium. Many of these riders we find very beneficial to the contract holder and some others are ancillary and expensive.

(Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.)