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Life Insurance

There are generally two categories of Life Insurance; term and permanent.


Term insurance is less expensive and is ideal when the need for coverage is for shorter defined period of time. It is pure insurance that will pay the death benefit if the insured dies while the policy is in force. Because term insurance has no cash value and is for a specific period, or "term," this approach is likened to renting. The term may be for five to thirty years and normally provides an option to convert to a permanent policy.


Permanent insurance is designed to last for the life of the insured. It can be Universal or Whole Life insurance. Universal Life insurance is designed to be very flexible for the period of coverage. Both the premiums and the death benefit can be adjusted to fit the changing needs of the policy owner. If a need for more coverage appears, the policy owner simply applies for more coverage on the existing policy. Since the company has already placed coverage on the insured, only the additional amount of coverage is subject to underwriting requirements. In addition, if the policy owner needs to reduce the premiums, they may do so and the policy will stay in force as long as there is one dollar of cash value in the policy.


Whole life insurance is designed to provide a high level of guarantee. Both the premiums and the death will never change unless the policy dividends are being utilized to do so. For example, participating Whole life policies give the contract owner four dividend options to choose from.


The first dividend option is to take them in cash. In this scenario, the policy owner will receive any dividend declared by the company in cash. Since the IRS recognizes life insurance dividends as a return of premium, they are usually tax-free.


The second dividend option is to reduce premiums. Here the dividend is applied to the next policy year's premium so the invoice will be for the stated premium less any dividend earned.


The third dividend option is to purchase paid up additions. When this is chosen, the policy will actually buy additional coverage which is paid up with the dividend. In addition, this additional insurance is not subject to underwriting and may be very attractive to someone who has experienced a change in health since the inception of the contract.


The fourth dividend option is to leave them with the insurance company to accumulate with interest. This is a good option for someone who wants to create a safe savings vehicle that can be accessed for emergencies.

Factors affecting your life insurance needs:

  • Having a child

  • Buying a home

  • Taking on new debt

  • Changing jobs

  • Caring for aging parents

  • Change in business

  • Change in marital status

  • Planning for college

  • Planning for retirement

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