Life Insurance Benefits and Uses

If you have dependents or other significant people in your life, life insurance can provide financial security for them at virtually every stage of your life.

Life Insurance Benefits:

	Provide funds so a family can remain living in “their own world” if a
breadwinner dies.
	Mortgage protection- The death benefit can provide funds to
eliminate a mortgage.
	Protection against other outstanding debts.
	In certain cases, allows for pensioners to maximize their payout
options.
	College funding- No current taxes on gains, tax-free loans and
withdrawals. Funding is completed on death.
	Can be used to pay estate taxes.
	Can be used to personally guarantee business loans.
	Buy/sell agreements- Provides protection to business partners.
	Key person coverage- Provides protection to businesses in the event
of the death of a key employee.

How Much Life Insurance Do I Need?
The Consumer Federation of America (CFA, 1997) recommends 6 to 8 times your income for a married couple with children. While rules of thumb may be helpful, they do not take into consideration each individual’s personal situation.

Contact us for a life insurance needs analysis.

Types of Life Insurance:

-Term Insurance

• Term life insurance is sometimes called “pure” insurance since all it provides is insurance coverage; there is no cash value accumulation as is the case with permanent insurance.
• Because there is no cash value, term insurance is less costly than permanent insurance in the early years, but may become quite costly at later renewals.
• It remains in effect for a specified period of time, or term, after which the coverage expires.
• Different periods are available, but most insurers offer terms of:
	One year, five years, ten years and more
	A specified period such as “to age 65."
• Most term insurance policies can be renewed up to some maximum age with no requirement for the insured to prove he or she is still insurable. This can be a tremendous benefit since anyone can become uninsurable at any time without warning.
• When the policy is renewed, the premium is adjusted upward based on the insured’s age at renewal- the attained age. The premium will increase every time the policy is renewed. The amount of the increases goes up as the insured ages.
• To counter ever-increasing premium, companies may offer term policies that have a level premium. This means that for the entire term of the policy, the insured will pay the same premium, avoiding the sharp increases in later years. Two ways to have a level premium:
	The insured pays more during the early years than would be paid if the policy were renewed more frequently at the insured’s attained age; or
	The insured’s coverage declines over the life of the policy.
• Convertibility options allow the insured to convert to a permanent policy without proving insurability. Conversion can:
	Stop the increasing premiums by establishing a level premium that will be paid for the life of the converted policy.
	Provide the insured with a “savings” element through the buildup of cash values only in permanent policies.
• The premium required for permanent insurance is usually based on the insured person’s age at the time the conversion occurs.

-Term Life Insurance Coverage
• Level term- the amount of insurance remains the same throughout the period the policy is in effect.

• Decreasing term- the amount of insurance gradually decreases over the policy period. This type is often used when there is a decreasing financial need, such as protection for a home mortgage that decreases over time.

• Increasing term- the amount of insurance gradually increases during the policy period by a stipulated percentage or amount. This type is sometimes used to provide an inflation fighting feature.

Contact us for a life insurance needs analysis.

o Traditional Whole Life Insurance
• Combines a death benefit with an accumulation or savings element.
• The owner has no control over how the savings element is invested.

o Universal Life Insurance
• Universal life is a flexible premium, adjustable benefit life insurance contract.

• It is a mix between term insurance and a savings fund that is invested in the general account of the insurance company and there are guarantees of the interest rate.

• You pay a yearly fee for the insurance coverage which includes a cost of managing the policy. Funds not paying for insurance earn tax-deferred interest.

• With a universal life policy, the premium can vary. You decide how much to pay toward insurance and towards savings.

• You can change the face amount of the policy or change the amount of premium payments and how often you pay them. However, you must be sure your savings are enough to cover the monthly premiums for insurance and policy expenses. If they are not, the monthly charges will use up the cash value and the policy will be worthless.

• Universal life has two options.

o Option A: the death benefits stay the same from year to year if you do not ask for any changes.
o Option B: the death benefit at any time is equal to the original face amount plus the policy’s cash value.

• Universal life often pays a high rate when interest rates are high, even though the insuring company only guarantees a low rate.

• Due to this, premiums are lower than for whole life but more than for term insurance for younger people.

• When charges for managing the universal policy are added to the premium, you get a lower return on your investment.

• Changes in interest rates will affect both your yields and your premiums.

• After the first policy year you can withdraw funds from the cash surrender value of the policy.

• You can also borrow the cash value. If not repaid the loan will reduce the amount of the death benefit.

Contact us for a life insurance needs analysis.

-Variable Universal Life Insurance

• Simply stated, VUL is basically term life insurance coupled with a group of separate accounts similar to a family of mutual funds that are available within the contract, to help the policy owners meet their investment objectives.
The characteristics of this type of policy:
	The right to vary the frequency and amount of the premium payment
	The ability to allocate net premiums among one or more of the separate accounts
	The right to increase or decrease the policy’s face amount or change the death benefit option
• Variable life insurance may be appropriate for customers with a need for life insurance and an ability to pay for permanent life insurance protection.
• Since the cash value and death benefit may fluctuate due to the performance of the investments in the separate account, a variable life insurance customer should also be able to assume investment risk.
• The customer needs to understand the implications of adverse investment performance such as the cash value in the policy becoming too low to maintain the value of the death benefit so that he or she may have to pay higher premiums.

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