What Kind of Life Insurance do you have – or need?

By Larry Martin an investment adviser representative.

A good resource on insurance can be found on the Kansas Insurance Department website, http://www.insureuonline.org/insureu_type_life.htm
  • Term insurance is temporary insurance. Typically, it is the least costly type of insurance. It provides a death benefit only for the length of the term. There are different types of term insurance:
    • Level premium – the death benefit and premium remain level for the term of the policy. The term can be 5, 10, 20 or even 30 years.
    • Annual renewable – this policy is renewed each year, so the term is one year. Generally, the premium increases every year you renew the policy so although it starts off as the cheapest, it becomes very costly down the road.
    • Decreasing term – the premiums remain level but the death benefit decreases over time.
    Permanent insurance remains in effect for the life of the policy, so long as you pay your premiums. Some basic different types are:
    • Whole life insurance offers a fixed premium for the duration of the policy (typically your lifetime), guaranteed annual cash value growth and a guaranteed death benefit. It does not provide investment flexibility and, once established, you are not allowed to change the policy coverage. The cash value can grow to exceed the total premiums paid into the policy. The cash value is a resource you can use and we will discuss it later.
    • Universal life insurance allows the policyholder to determine the amount and timing of premium payments (within certain limits) and to adjust coverage levels as needs change. Although they do have a guaranteed cash value, they do not typically have as rich a cash value as whole life policies do and tend to be cheaper in cost.
    Variable life insurance. It allows allocation of investment funds across stocks, bonds or money market accounts with different levels of risk and growth potential, like a mutual fund. A minimum cash value is not guaranteed because of market fluctuations, and coverage amounts cannot be changed. It exposes the policyholder to greater market risk, but has the potential for greater long term returns compared to whole or universal life insurance policies.
    Variable universal life insurance is a combination of variable and universal life insurance. It offers the most flexibility (compared to other permanent life insurance options) with the ability to vary premium payments, investments and coverage amounts. It allows investment in a variety of market products chosen by the policyholder, and may allow policyholders to make tax-free transfers among investments. It exposes the policyholder to greater market risk than whole or universal life policies.


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