Buying life insurance to protect your family’s future requires you to make some important choices, including the type of life insurance you need. If you’re a first-time life insurance shopper, chances are you may not know which option may be the right one for you. Below is a breakdown of various life insurance options to help you find the best match.
Term Life Insurance
Term life insurance has level premiums that last for a set number of years (the term). This life insurance includes a death benefit in the form of a lump sum of cash that’s paid out to a beneficiary by the life insurance company if you die during the term period. This lump sum that can be used for a variety of things, from burial expenses to mortgage and debt payments, to living expenses for your family, to donations, generally tax-free. After the term expires the policy terminates. In order to continue coverage, you’ll have to convert your policy to permanent coverage before the term ends, renew it for another term, or shop for a new policy.
Key Features of the Policy
- It provides a generally tax-free death benefit for your loved ones.
- Easy-to-understand.
- It’s the least expensive form of life insurance.
- The low-level premium expires after a set number of years or term.
Who Should Buy It?
Term life insurance is a great choice for most life insurance shoppers because it’s simple and cost-effective. If you’re on a tight budget, or you’re a young person age 20-30 who is just starting to build your financial future, term life insurance can be a good match for you.
Guaranteed Universal Life Insurance
Guaranteed Universal Life insurance is permanent coverage that provides the ability to guarantee a death benefit to any age up to a maximum as stated in the policy, as long as premiums are paid and the policy remains in force. Guaranteed universal life insurance is not designed to build up cash value.
Key Features of the Policy
- Can provide a guaranteed death benefit for your whole life
- Death benefit passes to beneficiaries generally tax-free
Who Should Buy It?
Anyone with a need for death benefit coverage who desires to buy a policy that can cover their entire life with less costly premiums compared to other permanent products.
Indexed Universal Life Insurance
Indexed Universal Life is insurance offers death benefit protection, and the opportunity to earn tax-deferred interest on the interest credits linked to the performance of one or more stock market indices chosen. This feature gives you the potential for cash value accumulation plus, it offers downside protection in a poorly performing market because you do not participate directly in the stock market and the credited interest rate is never less than the minimum interest rate or zero percent (floor). The upside is limited by either an index cap rate or an index participation rate. The index cap rate is the maximum interest rate used to calculate the index credit. The index participation rate is the portion of the index change used to calculate the index credit. The premium paid in the policy is not directly invested in any index or the stock market.
Key Features of the Policy
- The death benefit is not generally subject to income taxes for the beneficiary.
- It offers potential to grow cash value.
- The amount credited to the cash value grows tax-deferred without directly investing in the market.
- Flexible, adjustable premium and death benefit amounts as needs change.
- It can be an expensive product depending on your goals.
Who Should Buy It?
If interested in providing a death benefit for your beneficiaries with additional benefits, indexed universal life insurance policy might be attractive to you for its upside growth potential.
Remember that you don’t have to make a decision about life insurance alone. If you feel lost or overwhelmed by the choices or complexities of the products lets us know at info@commonfinancialsense.com
