Types of Life Insurance
- Term
- Return of Premium (ROP)
- Whole Life
- Universal Life
- Variable Universal Life
- Survivorship or Second-to-Die
Term
Term Life Insurance provides protections for a specified period of time. A death benefit is paid to the beneficiary if the insured dies within a period of time while the policy is still in force. Many term life insurance plans can be converted to permanent life plans without evidence of insurability.
Return Of Premium Term (ROP)
A return of premium term life policy typically offers a level death benefit with fully guaranteed level premium for the first 15, 20 or 30 years, though this may vary by company and state. Under the return-of-premium feature, the cumulative premiums paid, not including substandard and rider charges will be returned at the end of the level term period if the policy is in force at that time. Often, a portion of the cumulative premiums will be refunded upon surrender after the policy has been in force for a specified number of years. Most return of premium life insurance policies allow for conversion to permanent insurance offered by the same company during the covered period without evidence of insurability.
Whole Life Insurance
Whole life is cash-value insurance, which stays in effect as long as premiums are paid. That sets it apart from term insurance, which is for a specified term only and must be renewed on a regular basis. Premiums are paid for the “whole life” of the insured person, continuing until he or she dies or reaches a specified maximum age.
The rate of return on whole life insurance cash values is dependent upon a number of factors including the results of an insurance company’s investment performance.
Whole life insurance policies are valuable because they provide permanent protection and accumulate cash values that can be used for emergencies or to meet specific objectives.
The cash values of whole life insurance policies may be affected by a life insurance companies future performance. Some factors that influence a life insurance company’s performance are expenses, mortality experience, and investment performance.
Universal Life Insurance
Universal life insurance, while similar to traditional cash value contracts, includes variations and options designed to make life insurance more attractive to consumers. A major difference: universal life policy owners can adjust both the premium and the death benefit – up or down- throughout the insured’s life.
Universal life policies may be purchased with one of two different death benefit options. One is a level death benefit and the second is an increasing death benefit. Although premium payments are flexible, a universal life policy will usually have a target premium which is the suggested annual premium payment. The target premium for some companies is sufficient to keep the policy in-force to age 100; however, this is not guaranteed.
Universal life insurance policies are valuable because they can provide permanent protection and accumulate cash values that can be used for emergencies or for meeting specific objectives. For those who prefer flexibility, universal life insurance provides more options than whole life insurance.
The cash values of universal life insurance policies may be affected by a life insurance company’s future performance. Some factors that influence a life insurance company’s performance are expenses, mortality experience, and investment performance.
Variable Universal Life Insurance
Variable universal Life (VUL) may offer the best of both worlds – insurance protection combined with professional managed investments to help you control your financial future.
The VUL contract provides a great deal of flexibility not found in traditional life insurance policies. Premium payments may be increased or decreased (or skipped entirely in some cases) as the policy owner’s financial situation and priorities change. The death benefit is variable and adjustable, capable of being raised or lowered. Variable cash values can grow with favorable investment performance. The policy owner has control over the selection of variable investment options within the contract. The policy owner can choose from a range of options for loans and withdrawals. As with all types of cash-value life insurance, poor policy performance, distributions (through loans or withdrawals), and under funding can cause the policy to lapse. The policy holder has the responsibility to manage the policy accordingly.
Survivorship or Second-to-Die Life Insurance
Survivorship policies, also known as second-to-die policies, insure the lives of two or more people, but the death benefit is payable only after the second – or last- death.What are its uses? A common use for a survivorship policy is to fund estate taxes when the second spouse dies. Estate assets generally pass tax-free from one spouse to another under the marital deduction when the first spouse dies. But estate taxes may become payable when the second spouse dies with an estate exceeding the exemption amount. Estate tax payment isn’t the only reason to consider a survivorship policy. Some other uses may include:
- There can be a need to provide continuing income for people who are dependent on the insured couple, such as minor children, disabled adult children or elderly relatives.
- Surviving children buying a business owned by insured parents may need money to fund a buyout of the parents’ interest.
- Two key employees can be covered in a survivorship policy when the employer can handle the financial impact of one death, but not two.
- Two or more business partners can be insured in the same policy, providing funds to cover expenses when the last partner dies and the business must be dissolved or sold.
Premium payments are typically lower than for two individual policies since the statistical risk is lower for the insurance company. Many insurance companies will insure a person whose health is marginal as long as the other insured person covered by the same policy is healthy. Also, coverage is less expensive than for a single life policy because the death benefit isn’t paid until the second death. These and other benefits illustrate that survivorship life insurance can be an effective, economical way to insure people whose relationship can create tax consequences or other needs at the second or last death