Life Insurance Made Simple
In all its forms life insurance has one core benefit – it pays an income-tax-free death benefit directly to your beneficiary when you die.
Life insurance also gives you options that can reduce taxes immediately, build tax-advantaged income for retirement and/or provide assets to offset estate taxes.
The two major types of insurance coverage are term insurance and cash value insurance
Provides protection for a specific time period
Generally less expensive than cash value, term insurance is similar to renting a property rather than owning. You pay for it during the term of the policy (e.g. five, 10, 15 years, etc.) and when the term expires so does your policy (with no equity).
Generally purchased to cover specific needs (e.g. children until they become adults, a mortgage until it is paid off, or other short-term obligations)
Cash Value Insurance
Can provide coverage for a lifetime while enabling you to potentially build up cash value. The cash equity you build can be accessed for emergencies and other needs.
Four common types of cash value insurance include:
Variable universal life
Typically designed for people with a longer investment time horizon as investment options will fluctuate in value with the market (similar to the way a mutual fund investment would) and therefore carries higher risk.
Often used for estate planning purposes, insuring two lives and paying the death benefit after the death of the second insured. The fact that one policy covers two lives often provides premium saving over two individual policies.
Offering a guaranteed death benefit and guaranteed cash value (albeit at lower values than you might earn in long-term variable account)
With the flexibility of variable universal life, but with a secured fixed rate of return for investors who prefer less risk
To help determine which type of life insurance you need (and how much you may require) consult with your professional financial advisor for recommendations.