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Types of Life Insurance

Financial Mortgage LeafTerm Life Insurance

Term life insurance policies provide coverage for a specified amount of time.  The death benefit will be paid to the beneficiary ONLY in the case that the insured dies during that term in which the policy is active.  Many term life insurance plans can be converted to permanent life insurance plans without evidence of insurability. There are 2 types of term life insurance: Yearly Renewable Term and Level Premium Term.

Yearly renewable term life insurance begins with low premiums that are to increase substantially as the insured ages.

Level premium term life insurance has premiums which remain constant over a term of 5, 10, 15, 20, 25, and 30 years. After the level period expires, the annual premium will increase each year and usually has a premium cap.
 
Over the long term, the premiums for a level term policy are much cheaper than those of a renewable policy despite the initial lower premium of the latter.  As an example, the below chart compares the costs of a yearly renewable term plan with a 20-year level premium term plan, both for $500,000 of life insurance.

PREMIUMS FOR $500,000 OF LIFE INSURANCE, 35 YEAR OLD, MALE

Year Yearly RenewableTerm

 Level Premium Term
1

 $315.00

 $495.00
2

 $325.00

 $495.00
3

 $345.00

 $495.00
4

 $380.00

 $495.00
5

 $455.00

 $495.00
6

 $525.00

 $495.00
7

 $600.00

 $495.00
8

 $710.00

 $495.00
9

 $815.00

 $495.00
10

 $925.00

 $495.00
11

 $2295.00

 $495.00
12

 $2375.00

 $495.00
13

 $2455.00

 $495.00
14

 $2540.00

 $495.00
15

 $2625.00

 $495.00
16

 $2715.00

 $495.00
17

 $2955.00

 $495.00
18

 $3225.00

 $495.00
19

 $3535.00

 $495.00
20

 $3890.00

 $495.00
TOTAL

 $34,005.00

 $9,900.00
    • At more than 3 times the cost of a level premium term policy, the yearly renewable term policy clearly is not a good choice for the long term.
    • Generally speaking, term life insurance is best suited for situations where you need temporary coverage for your family but do not have the budget to support a whole lift policy.
    • What is a Return of Premium (ROP) Term Life Insurance Policy?
    • Although it can vary from state to state, a return of premium term life insurance policy generally offers a level death benefit and guaranteed* level premiums for a term of 15, 20, or 30 years. At the end of the level term period the total premiums paid, excluding substandard and rider charges, will be returned to the policy holder.  Most ROP life insurance policies will give the insured the option of conversion to a permanent insurance policy offered by the same company during the active term without requiring proof of insurability.

      *guarantees may be subject to the claims-paying ability of the underwriting insurance company

     

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    Financial Mortgage LeafWhole Life Insurance

    A whole life insurance policy is permanent life insurance that provides protection for the entire life of the insured. The premiums for this type of policy are calculated so as to remain level over the life of the policy and these policies will accumulate cash surrender values that are tax-deferred. The following options are available for use of cash values:


    • The policy can be surrendered at anytime for the amount of the cash value.
    • The policy owner can borrow money against the policy’s cash value.
    • The policy can be converted to a “paid up” policy with a reduced death benefit.
    • The cash values may be used to pay future premiums for an extended period.
    • The cash surrenders can be annuitized.

    Among the many benefits of whole life policies, the most important distinction is that they provide permanent coverage as well as accumulate cash surrender values. It is possible that an insurance company's expenses, mortality experience, and investment performance might affect cash values of certain whole life policies.

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    Financial Mortgage LeafUniversal Life Insurance

    A whole life insurance policy is permanent life insurance that provides protection for the entire life of the insured. The distinctive feature of universal policies is that they offer owners flexibility in premiums and death benefits whereas whole life policies do not. A policy can either be purchased with a level death benefit or an increasing death benefit. Though the premiums for universal life policies are flexible, generally there will be a target premium that is suggested or recommended. Like whole life policies, Universal life insurance also accumulates tax-deferred cash values.

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