Term, Universal and Whole Life Insurance Snapshot
The Bottom Line
If there are people who would be financially impacted if they lost you, you should look into life insurance.
To some it looks complicated. To others, with all the promotions through the mail, television and the internet, it looks very accessible & cheap. Reality falls in the middle. Working with a trusted professional should minimize all complications and obstacles, as well as properly set your expectations about realistic premium amounts. It’s critical to purchase a plan from a reputable company. And, since the premiums are the same regardless of whether you purchase through an agent or directly from the company, it is always in your best interest to work with an independent agent who will talk with you, do a needs analysis, shop the market to find the right product at the right price and serve as your advocate after you’ve purchased your policy.
People who are primarily concerned about survivor needs, paying for college, and/or paying off a mortgage will be best served by purchasing a level term policy. This is a specific amount of coverage for a specific period of time (5-30 years) where the premiums stay the same for the entire time this policy is in force. Some policies have different riders that can be added like Return of Premium or Accidental Death.
For businesses, term policies are generally used for Key Person Insurance as part of Buy-Sell Agreements and more recently for Structured Settlement Buyouts where the settler pays a lump sum in return for an income stream. Click here to read more.
Universal life policy mimics term except you can have it for the rest of your life. The premiums are usually significantly higher because there is no termination to the policy and these policies also have the ability to build cash values (Cash value is an amount available in cash upon cancellation before the policy becomes payable upon death or maturity.) You can choose to build a cash value. If your main concern is having continuous coverage with no lapse or concern about needing to be underwritten in the future (or building a cash value), just pay the minimum amount. Many times, riders that can be added – Long-Term Care in some cases.
Whole Life is also insurance you can have for the rest of your life. However, since there is a definite cash value component, you pay much higher premiums. It’s really your money that’s accumulating… And, for this reason, there are usually better options for most people other than Whole Life Insurance.