Life Insurance
A “term policy” involves coverage purchased for a specific time period and pays a death benefit only if the policyholder dies during the time for which the policy is written, and premiums are paid. If a person has a child when they are twenty and wants coverage until their child reaches the age of 20, they could choose a 20-year term policy.
Key Characteristics:
- The premium is more affordable during your early years.
- Pays benefits only if the insured dies during the coverage period.
- Does not usually accumulate cash value.
- Is suitable for large amounts of coverage for specific periods (i.e., one, five, 10 or 20 years, etc.) or to age 60 or 65.
Useful for:
- Parents of young children
- People with large financial obligations and home buyers
With term insurance, coverage ends after the specified term in your policy is reached, unless it includes a provision allowing you to renew your policy without providing evidence of insurability, such as passing a physical exam. However, your premiums will increase as you age.
A term insurance policy may be convertible. This means you could exchange the policy for a whole life policy without providing evidence of good health. Although the premium for the whole life policy will be higher than the original term policy, the premium will not change again for the rest of your life.
To learn more about Term Insurance
Whole life insurance, also known as “permanent insurance” involves coverage effective for the entire life of the policyholder. A whole life policy pays a death benefit when the policyholder dies, regardless of his or her age.
Key Characteristics:
- Provides a fixed amount of life insurance coverage and a fixed premium amount.
- Benefits are payable upon the death of the insured or on the maturity date- often the policyholder’s 100th birthday.
- Coverage can increase only with the purchase of an additional policy, or, if available, through additional riders or dividends.
- Policy coverage is provided for life. • Premiums are paid at a fixed rate throughout your lifetime, if the policy remains active.
- The cash value accumulates from premiums paid and increases over the years.
- The earnings (for tax purposes) include only the amount accumulated in excess of the premiums paid. You may owe taxes on such earnings if you surrender the policy. In most cases, you will not owe taxes on the earnings if you do not surrender the policy. Check with your tax professional.
- Policies with cash values include provisions that allow you to take out loans on your policy for up to the amount of the cash value. The loans accumulate with interest, but repayment is not required prior to death. If you die and the loan has not been repaid, the insurance company deducts the owed amount, plus interest, from the death proceeds paid to your beneficiary
Useful for:
- Death or burial expenses – Be wary of policies sold specifically as burial expense policies, as you may end up paying more in premiums than the policy is worth.
- Estate or probate taxes.
- Cash – The owner can give up the policy and receive the accrued cash value.
To learn more about Whole Life Insurance
What Is Indexed Universal Life Insurance?
Indexed universal life insurance is a form of permanent life insurance that offers a cash value account connect to a market index, like the S&P 500.
(IUL) insurance allows the owner to allocate cash value amounts to either a fixed or equity index account. Policies offer a variety of well-known indexes, such as the Nasdaq-100 or the S&P 500.1
IUL insurance policies are more volatile than fixed ULs, but they are less risky than variable UL insurance policies because no money is invested in equity positions.
IUL insurance policies offer tax-deferred cash accumulation for retirement while maintaining a death benefit. People who need permanent life insurance protection but wish to take advantage of possible cash accumulation via an equity index might use IULs as critical person insurance for business owners, premium financing plans, or estate-planning vehicles. IULs are considered advanced life insurance products in that they can be challenging to adequately explain and understand them.
The Bottom Line
While not for everyone, IUL insurance policies are a viable option for people for permanent life insurance with a cash component that earns interest plus a death benefit. This type of life insurance is more expensive than term life insurance, but you get permanent coverage, and a death benefit paid to your beneficiaries when you die. The policy may even increase in value due to the cash value component, and you may be able to borrow from your account.
To learn more about Indexed Universal Life Insurance
Indexed Universal Life Insurance is an insurance contract that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an indexed universal life insurance for its features, costs, risks, and how the variables are calculated.
Key Characteristics:
- You can increase or decrease the face amount” of your insurance, within limits stated in the policy, to meet your changing needs. You may have to provide evidence of insurability, such as a physical exam.
- You can decide, within policy guidelines, on the amount of premiums and the schedule of payments. There may be limits on premiums because of tax laws. Check with your tax professional.
- You may select a policy that is interest sensitive or one that has a guaranteed rate. Useful for:
- Meeting various financial obligations that may occur during a lifetime, such as those that involve marriage or raising a family.
- Providing guaranteed death benefits for people who need them but want the opportunity to earn more interest on the policy’s cash value. With an interest sensitive policy, you accept at least part of the investment risk.
To learn more about Universal Life
What Is Disability Insurance?
As its name suggests, disability insurance is a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability.
In the United States, individuals can obtain disability insurance from the government through the Social Security System. They can also purchase disability insurance from private insurers.
KEY TAKEAWAYS
- Disability insurance is a type of insurance protecting against loss of income due to disability.
- Disability insurance is available through both public and private programs.
- Some of the variables affecting the cost of disability insurance include the strictness of requirements for qualifying under the plans; the amount of income to be replaced; the length of time in which benefits are paid; the medical history; and the length of time policyholders must wait before beginning to collect those benefits.
To learn more about Disability Insurance
What Is Long-Term Care (LTC) Insurance?
Long-term care (LTC) insurance is coverage that provides nursing-home care, home-health care, and personal or adult daycare for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. LTC insurance offers more flexibility and options than many public assistance programs, such as Medicaid.
KEY TAKEAWAYS
- Long-term care insurance usually covers all or part of assisted living facilities and in-home care for people 65 or older or with a chronic condition that needs constant care.
- It is private insurance available to anyone who can afford to pay for it.
- Long-term care insurance offers more flexibility and options than Medicaid.
To learn more about Long-Term Care (LTC) Insurance
Life Insurance provides financial protection for millions of people in America and around the world. Not all life policies are purchased by individuals; many companies and other institutions also use life insurance for various purposes, such as to provide liquidity. But the rules that pertain to corporate ownership of life insurance are somewhat more complex than for individual or group policies. This article examines the history, purpose and taxation of corporate-owned life insurance (COLI) in America.
Nature and Purpose of COLI
As the name states, COLI refers to life insurance that is purchased by a corporation for its own use. The corporation is either the total or partial beneficiary on the policy, and an employee or group of employees, owner or debtor is listed as the insured(s). Fundamentally, COLI differs from group life insurance policies that are typically offered to most or all of the employees in a company, because this type of insurance is designed to protect the employees and their families and not the company itself. COLI can be structured in many different ways to accomplish many different objectives. One of the most common is to fund certain types of nonqualified plans, such as a split-dollar life insurance policy that allows the company to recoup its premium outlay into the policy by naming itself as the beneficiary for the amount of premium paid, with the remainder going to the employee who is the insured on the policy. Other forms of COLI include key person life insurance that pays the company a death benefit upon the death of a key employee, and buy-sell agreements that fund the buyout of a deceased partner or owner of a business. In many cases, the death benefit is used to buy some or all of the shares of company stock owned by the deceased (such as with a closely-held business). COLI is also frequently used as a means of recovering the cost of funding various types of employee benefits.
To learn more about Corporate-Owned Life Insurance (COLI)
Keyman insurance, also known as key man or key person insurance, can help protect businesses financially if an individual who is critical to the company dies or becomes permanently disabled. That's important, considering that 71% of small businesses rely on just one or two people to oversee day-to-day operations. Keyman insurance may also be necessary when executing a buy and sell agreement to transfer ownership of a business if one partner dies.
KEY TAKEAWAYS
- Keyman, or key person, insurance is designed to cover critical individuals within a business organization who make significant contributions to its revenue.
- With a keyman insurance policy, the business, rather than an individual, is typically the beneficiary.
- Keyman insurance policies can be term life or permanent life, depending on the preference of the business. It can also take the form of disability insurance.
What is Keyman Insurance?
Keyman insurance is a specific type of insurance policy primarily for small businesses. These policies are designed to compensate the business when a key person dies or becomes disabled and can no longer fulfill their role.
A key person is generally anyone whose skills and/or knowledge contribute significantly to the business's revenues and profitability. That may include:
- Business owners or partners
- Members of the executive leadership team
- Top salespeople
Keyman insurance is essentially a risk management tool. If a key person passes away or becomes disabled, then the policy could provide funds to continue day-to-day operations, clear outstanding debts, and/or recruit a suitable replacement.
In a keyman insurance policy, the business is typically the primary beneficiary and is responsible for paying the premiums.
To learn more about Keyman Insurance
What is Buy Sell Insurance?
Buy sell insurance is designed for businesses with two or more partners. This life and disability insurance financially backs an existing buy sell agreement by ensuring that remaining partners in a business have the cash necessary to buy out the business interest of the exiting partner.
Who needs Buy Sell Insurance?
Any business with two or more partners should evaluate the need for buy sell insurance. If you fit into one of the categories below, you should seriously consider a buy sell insurance policy.
- Business value of $5M+
- Partners have a large age gap
- All partners are healthy
- Ownership percentages are unequal
- You would not want to own your business with an exiting partners’ heirs
- You cannot personally fund a buyout per your contract
- Business requiring professional education/licensing
To learn more about Buy-Sell Insurance
What is Final Expense Insurance?
Final expense insurance is an insurance policy used to pay for burial expenses and funeral services when the named insured dies.
Such a policy helps ease the financial burden placed on a family when a loved one dies.
More About Final Expense Coverage
Final Expense insurance is a basic issue life insurance policy that covers people until they reach 100 years old. It is quite similar to universal life insurance and is sometimes referred to as graded life or burial insurance with easy issue permanent coverage.
As an inexpensive insurance choice, final expense coverage can be used to cover the funeral and burial costs of the policy holder. Most people who do not want to place a hardship or burden their families with these burial and funeral costs will take out burial insurance polices.
Burial premiums can begin with higher costs at first than other forms of insurance since they include cash value features. An important advantage of burial premiums is that they are fixed, which means they remain the same even if your health deteriorates.
Final Expense coverage can pay for the casket, funeral service, visitation/viewing, hearse, digging and filling the grave, the actual cemetery plot, or burial vault or grave liner, minister, headstone, flowers, and other expenses related directly to named insured's funeral.
To learn more about the right final expense coverage for you.
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