The Various Types of Life Insurance Explained (FREE Quote
Links Provided at Bottom):
Life Insurance is a unique product that can fulfill a variety of
needs. Life Insurance can create instant Estates, replace family income due to
the death of the primary family wage earner, and can also provide instant
liquidity to pay inheritance taxes, funeral expenses, and such outstanding
financial obligations as home mortgages, car loans, and business debts. It can
also serve as a meaningful place to imbed capital, and compound it tax deferred,
while providing professional money management with investment flexibility and
multiple tax efficiencies.
Life Insurance pays a cash, lump sum death benefit, upon the death of the
insured. There are two basic types of Life Insurance, and both types pay an
income tax free death benefit (death benefit guarantees depend on the claims
paying ability of the issuing insurance company), and each requires the payment
of mortality costs and policy expenses through the policy " premiums?; however,
only offers potential "in-life" premium cost recovery and capital appreciation.
Therefore, what really distinguishes two types of life insurance
is the manner in which one pays for them. The question often remains...which
should you choose?
I. "CASH VALUE" Life Insurance is typically a level premium
insurance designed to meet LONG DURATION needs (typically 15 yrs. or longer
depending on your age). Purchasing a Cash Value policy is similar to owning -Vs-
renting a home. Renting represents pure cost with no equity, whereas owning
offers both cost recovery & the potential of asset appreciation. A CASH VALUE
policy accomplishes this by reinvesting a portion of its’ premium creating a
"cash value" or internal savings account. Typically, by the 5th-15th year, the
policies’ accumulated value can equal or exceed all paid premiums (assuming a
hypothetical gross rate of return & other plan variables), often referred to as
the policies " premium cost recovery and of in for point.? These can also later
be used as source retirement income, based upon current law. The recovery,
savings growth potential, tax free income features Cash Value Life Insurance
make it a highly flexible, less costly choice, those need LONG DURATION,
lifetime coverage.
What is of particular interest with this type of policy is that, over time, more
and more of the policy costs are paid from internal policy earnings, thereby
using pre-tax dollars over after tax dollars, which provides a much more cost
efficient way to buy any type of life coverage through the advantage of a longer
time frame within which to pay premiums. This is particularly true when such a
policy is maximum funded, since the Insurer’s cost of insurance ("COI") charges
decline as the internal policy cash values increase. COI charges are based on
the net difference between the face amount of the policy and the policies
accumulated cash values (i.e. the net amount at risk). The particular type of
Cash Value policy one should choose is an important decision and one that should
only be undertaken with professional assistance. Cash Value policies are also
highly flexible vehicles offering significant tax and other customizable
investment advantages.
I (a): Click Here to learn about a way of using Life
Insurance as a means of tax favorably accumulating assets, better known as a
"LIAAP Plan".
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II. "TERM" Life Insurance is an increasing premium policy where
premiums increase either annually or over fixed time periods. Term Life is for
needs that are of a SHORT DURATION, typically not greater than 15 years (e.g.,
to indemnify loans & other short term debt obligations). TERM Life Insurance
plans, as the name indicates, provide coverage for a stated number of years, or
a "term period" of time. A disadvantage of Term Life is that it does not have
any cash value; therefore, it can not provide any tax free income nor, capital
appreciation, or cost recovery, until after life ends. However, an advantage of
Term Life is that its premiums are initially low allowing for the acquisition of
larger amounts of coverage. Term Life is now available with either annual rates
(costs increase each year as you age) or Level time period rates (5, 10, 15,
20,and even 30 years in length).
II (a). Return of Premium ("ROP") TERM Life (w/Cash Values)
Beginning roughly in 2005, insurance companies began offering
"hybrid TERM Life insurance policies" offering either a partial or full return
of premiums at the end of the originally selected "term period" (typically, a
level period of years equaling 10, 20 or 30 years).
The premiums for such policies are higher than traditional TERM
Life policies that do not offer any cash value accumulation or potential returns
at the end of the level premium term period. Further, the Cash Value
accumulations in these ROP types of policies offer little to no recovery of
premiums until well into the later years of the policy when the policy is within
a few years, to the very final years, of the selected period of time (i.e. 10,
20 or 30 years).
We generally do not recommend these policy types because a strong
case can be made to alternatively simply buy a traditional level term plan, at a
lower level cost, and invest the difference between that and the higher cost ROP
plan and end up with not only more accumulated cash but with greater overall
flexibility over such resources. A CASH VALUE Life plan can even accomplish this
better since the cash values accumulate tax deferred and may even be recovered
tax free.
IF one can determine ahead of time that the ROP will not be
needed after the end of the original level term period, and one fully intends to
cash out or surrender the coverage at that time (and believes that they will
remain fully insurable throughout), then such a policy may work fine in that it
will return premiums; however, one must not overlook that the full cost is not
recovered in a simple return of paid premiums because the "time value of money"
has not also been taken into consideration. In other words...had you invested
the same money, over the same time frame, it would have produced before and
after tax returns above and beyond just the principal itself; therefore, an
added "cost" exists (the loss of any appreciation to the principal had it been
invested over the same time frame).
Another consideration has to do with ROP policy "Conversion
Rights". One might decide later into the ROP policy that they indeed do want to
keep life insurance and that they need a more cost effective long-term CASH
VALUE policy. Since all TERM Life policies experience radically increasing rates
as one ages, or alternatively at the end of any level premium period, the
ability of being able to convert to a more cost effective policy, long-term, can
be very important. Such rights become even more important in cases where the
insured has become uninsurable, and therefore may have very few options (if any)
to obtain new coverage from another otherwise more competitively priced insurer
thereby requiring one to have to stay with their current insurer to obtain the
type of coverage their new life circumstances may "dictate" they then need.
The "Conversion Rights" of the ROP policy must be understood up front,
and very carefully, to account for such changes in life circumstances. The older
the age and right to convert the better (preferably at least age 71 - 85). Under
conversion any accumulated cash in an ROP TERM Life policy would be rolled over
into the new CASH Value policy ... so long as this is done on or before the end
of the ROPs Conversion Rights age limit. Why? Because there are serious
variations in ROP policies that can result in the cash value reverting to zero
values at the end of the level payment time frame if the policy is not cashed
out (surrendered), or if the policy is continued but under the older age higher
rates of the insured at the time when the initial level term period expires. We,
therefore, only recommend "ROP Policies" that preserve the accumulated values
(i.e. the principal put into the contract) after and beyond the level time frame
purchased, even though policies with this guarantee are slightly more expensive.
Such ROP "cash preservation" Term Life policies (e.g. they do not "zero-out"
accumulated cash values if not surrendered) become important in cases where,
after aging and possibly becoming uninsurable, one is left with only two
options; namely, either stay covered under the existing ROP plan whose premiums
will step-up or increase after the level term period annually (which then locks
up the cash values inside the policy at the end of the level time period and
also prevents them from being either withdrawn or borrowed), or, convert the ROP
plan (in time with the age restrictions of the policies Conversion Rights) into
a level premium, long-term, CASH VALUE policy, and roll over the otherwise
frozen or lost cash accumulations of the ROP policy into the new CASH VALUE life
plan and thereby either lower the required premiums of that plan or to increase
its cash values wherefrom the cash could then be either withdrawn or borrowed.
Life Settlements - Click Here for a
full discussion of this alternative to lapsing or otherwise letting an older
life Insurance policy terminate.
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As with all forms of Life Insurance care must be taken regards
many of the types of considerations described herein. Please contact us for
suitable recommendations to fulfill your Life Insurance needs at:
1.800.482.5347.
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I. "TERM" - Life Insurance (YRT; or Level Premium 5 - 30 Years):
CLICK HERE now for a no obligation online price quote and
application
II. "CASH VALUE" - Life Insurance: - CALL US NOW FOR RATES & AVAILABLE
PROGRAMS CUSTOMIZED FOR YOU -- numbers and additional details are not available
live on the web due to multiple variables both in plans and product features:
1.800.482.5347
III. SPECIAL Non-Medical Life Insurance Plans: Plans are still
underwritten, but no medical exam is required, with answers to health questions
conducted on the application papers only (a simpler and easy way for certain
individuals to more cost effectively obtain Life Insurance protection). If you
think this type of life insurance better meets your needs please contact us
directly to discuss.
