As a family-owned business, we understand that insurance is all about protecting your loved ones from the financial risk of life’s unexpected events. We can help you create a sound strategy that provides maximum robust coverage while using sophisticated life insurance planning that many people are not aware of.
Here's an overview of life insurance, options, and how to maximize policy coverage.
What Is Life Insurance?
Like insurance policies are contracts between insurers and policyholders. If the policyholder dies, the insurer pays a sum of money to a designated beneficiary. Some contracts trigger payments in the event of serious illness or other reasons, so each policy is unique.
Life insurance can be permanent or term. Permanent insurance covers the policyholder throughout their lifetime. It is possible to cancel the policy and the owner will receive a cash value after fee subtraction.
Term life insurance policies promise to pay a specified death benefit if the insured dies within a specific period. If the duration expires, the policyholder can renew at a higher premium, convert to permanent or allow the insurer to terminate the contract.
There are different term and permanent life insurance policies and contract variations from one insurer to another.
Universal Life vs. Whole Life Insurance
Whole and universal life are the two permanent life insurance policies.
Both plans accumulate cash, so you can withdraw, borrow or invest.
As such, permanent insurance policies are also known as cash-value insurance. This is because whole life coverage earns money through internal interest rates and dividends.
Conversely, universal policies accumulate cash through market indexes but both plans allow cash to be withdrawn, borrowed against or invest
Whole Life Insurance
As the name suggests, whole life insurance is a permanent life insurance policy that covers you for the rest of your life, provided you pay the premiums on time.
Unlike term life insurance, which covers the policyholder for a set amount of time, whole life policies last until death and is the most common policy people purchase to combine insurance with savings. The savings grow on a tax-deferred basis and can be invested to generate interest and dividends. To receive cash, policyholders can withdraw funds against the cash value or cancel the policy. Alternatively, the annual dividends can grow in interest, with some policyholders using dividends to reduce premium payments or purchase extra features.
Universal Life Insurance
known as adjustable life insurance, offer the flexibility to increase or reduce the policy's face value (death benefit). For example, the benefit can be reduced if medical circumstances change, or it can be reduced to pay lower premiums. Policyholders can also stop making payments or cancel the policy and withdraw its cash value. The face value can be reduced without canceling or surrendering the policy. Policyholders can also partially borrow funds against the face value, provided they have enough funds in their accounts.
Universal life policies can generate higher cash value since the returns are dependent on market conditions, with a portion of the premium being put in investments that grow the cash value.
Types of Universal Life
There are various universal life policies, including indexed, variable and guaranteed products. Options available can include no lapse coverage.
Flexible universal life coverage is the classic policy. It allows policyholders to determine the amount and timing of their premium payments. You can even skip payments, provided the premium doesn't fall below a specified minimum amount.
Fixed policies allow you to pay a specified fixed amount every month. The policyholder can choose a fixed policy for the first five years and then enjoy flexible premiums later.
Single premium insurance policies allow the insured to make a lump sum payment to cover the benefits and cost of insurance. In addition, single premiums can shelter funds from taxes and are ideal for growing the insurance cash value faster.
Indexed universal life insurance features a cash value that earns interest based on the stock market index selected by the insurer. The benefit of indexed life insurance is that it allows the insured to benefit from the stock market booms and protects them from the busts. Your insurance company can choose stock market indexes like S&P 500, the Credit Suisse Balanced Fund or a variety of funds offered by each insurance carrier.
Maximize Your Life Insurance Coverage
If structured correctly, policyholders can use life insurance to help pay estate tax and keep the death benefit proceeds income tax-free. A trustworthy financial advisor with experience in life insurance should be consulted to make sure the correct structure is completed. At Klyman Financial, we provide professional insurance advice to help protect what matters. Contact us today for more information about life insurance policies.
Life Insurance FAQs
What does life insurance cover?
Life insurance covers many expenses, including co-signed debts, mortgages, student loans, living expenses for the remaining family, burial expenses, family loans, estate taxes and more.
What if I outlive my policy term?
If you outlive a term policy, the contract will expire, and you won't receive any refund of the premiums paid. However, you may be able to convert the policy to permanent life insurance.
What happens if I don't pay premiums?
Insurance companies offer up to 30 days grace period, after which the policy will lapse. However, each contract is unique, and some contracts can accommodate skipping payments.
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