Life Insurance Review

End of Life Management Toolkit #4 | by Team Passare, Robert L. Shepard and Jeff A. Perry

2. Term or Permanent Insurance: Which is right for you?

There are two types of common life insurance plans, term and permanent insurance. Permanent insurance includes universal and whole life insurance.

Insurance Type Term Insurance
Provides
  • Guaranteed payment at death
  • A safety net for lost income during your lifetime
Provides
  • May or may not have a level premium
  • Can typically be paid over a range of one to 30 years
  • Typically starts out lower than a permanent policy
  • Increases annually, or at the end of a specified term because the insured’s probability of death increases each year
Insurance Type Whole Life, also known as Permanent Insurance
Provides
  • Protection over the entire lifetime of the insured
  • A fixed death benefit
  • Note: Depending on the policy and company, other benefits may be attached.
Premiums (Your Cost)
  • May or may not have a level premium
  • Can typically be paid over a range of one to 30 years
  • Typically starts out lower than a permanent policy
  • Increases annually, or at the end of a specified term because the insured’s probability of death increases each year
Variations of Traditional Whole Life Policy
Vanishing Premium
  • Provides protection over the insured’s entire lifetime
  • Requires policy premiums are paid over a shorter term, typically 7 to 10 years
  • Requires higher premiums to build value in the side fund to carry the policy for the balance of the insured’s lifetime
Variable Life
  • Allows its owner to use the cash value in the side fund to invest in mutual fund investments
  • Shifts investment risk to the policy owner because the owner is making the mutual fund investment decisions
Universal Life
  • Allows its owner to vary the amount of the annual premium or even skip a premium
  • Adjusts annually, by the insurer, to reflect current charges for mortality, expense, and investment performance
  • In certain cases, transfers underwriting and investment risk from the insurance company to the policy owner
  • Owner controls the cash flow both inside the policy (side fund) and outside (annual premium payments)

Helpful Hint:

  • If a spouse is employed and covering the family’ s living expenses, then it’s a good idea to insure that spouse.
  • If the working spouse dies, the insurance proceeds can continue to support the family.
  • If a spouse works at home, the insurance should include the cos t of the work, such as childcare, home management, that he/she may have normally performed without pay.
  • If the life insurance proceeds are needed to pay for federal es tate taxes, normally due at the death of the second spouse, then a survivorship policy (second-to-die) may be more appropriate.
Now, take a few minutes to answer these helpful questions about life insurance review.
  • To determine who in your family should be insured, identify when and for what purpose beneficiaries will need the insurance proceeds.
  • In your situation, compare the pros and cons of term life and whole life insurance.
  • If you are a two-income household, are there costs of working, such as childcare or home maintenance, that should be included in the insurance coverage?
  • When will I discuss with them my request for their participation?
  • If you decide to choose permanent life insurance, which type makes the most sense for your situation?

a.  Whole Life

b.  Universal life

c.  Variable life

d.  Vanishing premium

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