One of the best ways to protect yourself against the financial consequences of the premature death of a primary earner is life insurance. however, choosing from the many types of life insurance policies available can be a difficult process. Here are some main categories to help you find a life insurance policy that’s right for you.
Please note that the cost and availability of insurance depends on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy that involves insurance, it would be wise to make sure that you are insurable.
term life insurance
Term life insurance is the most basic and usually the most affordable. policies can be purchased for a specific period of time. If you die within the time period defined in your policy, the insurance company will pay your beneficiaries the face value of your policy.
Policies can generally be purchased for terms from one to 30 years. Annual renewable term insurance can generally be renewed each year without proof of insurability, but the premium may increase with each renewal. Term insurance is useful if you can only afford a low-cost option or if you need life insurance only for a certain amount of time (like until your kids graduate from college).
permanent life insurance
The other important category is permanent life insurance. you pay a premium while you live, and a benefit will be paid to your beneficiaries upon her death. Permanent life insurance usually comes with a “cash value” savings element. There are three main types of permanent life insurance: whole, universal, and variable.
Whole life insurance. This type of permanent life insurance has a premium that remains the same throughout the life of the policy. Although the premiums may seem higher than the risk of death in the early years, they can build cash value and are invested in the company’s general investment portfolio. you may be able to borrow cash value funds or redeem your policy for face value, if necessary.
Access to cash values through loans or partial surrenders can reduce the cash value of the policy and the death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Additional out-of-pocket payments may be required if actual dividends or investment returns decline, you withdraw policy values, take out a loan, or current charges increase.
Universal life insurance. Universal life coverage goes one step further. you have the same type of coverage and cash value as you would with Whole Life, but with more flexibility. Once the money has accumulated in your cash value account, you will be able to vary the frequency and amount of your premiums. In fact, it may be possible to structure the policy so that the invested cash value eventually fully covers your premium costs. Of course, it’s important to remember that changing your premiums can lower the value of the death benefit.
variable life insurance. With variable life insurance, you receive the same death protection as other types of permanent life insurance, but you are given control over how your cash value is invested. You have the option of investing your cash value in stocks, bonds, or money market funds. the value of your policy has the potential to grow faster, but there is also more risk. If your investments do not perform well, your cash value and death benefit may decrease. however, some policies provide a guarantee that your death benefit will not fall below a certain level. Premiums for this type of insurance are fixed and cannot be changed in relation to the size of your cash value account.
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Variable universal life is another type of variable life insurance. combines the features of variable and universal life insurance, giving you the investment options as well as the ability to adjust your premiums and death benefit.
As with most financial decisions, there are costs associated with life insurance. Generally, life insurance policies have contract limitations, fees, and charges, which may include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most policies have surrender charges that are assessed during the first few years of the contract if the policy is surrendered by the contract owner. any guarantee depends on the financial strength and ability to pay claims of the issuing company. life insurance is not guaranteed by the fdic or any other government agency; it is not a deposit of, nor is it guaranteed or endorsed by, any bank or savings association.
Withdrawals of earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made before age 59½. withdrawals reduce benefits and contract values. for variable life insurance and variable universal life insurance, the investment return and principal value of an investment option are not guaranteed and fluctuate with changes in market conditions; therefore, the principal may be worth more or less than the original amount invested when the policy is surrendered.
variable life and variable universal life are sold by prospect. Please consider the investment objectives, risks, charges and expenses before investing. The prospectus, which contains this and other information about the variable life or variable universal life insurance policy and the underlying investment options, may be obtained from your financial professional. be sure to read the prospectus carefully before deciding whether to invest.
The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendation, and cannot be relied upon for the purpose of avoiding federal tax penalties. You are encouraged to seek the guidance of an independent tax or legal professional. content is derived from sources believed to be accurate. neither the information presented nor any opinion expressed constitutes a solicitation to buy or sell any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 broadridge financial solutions, inc.