Life Insurance

Term Life Insurance :

• Term Life Insurance is the simplest and most affordable type of Life Insurance. It provides temporary protection for a predetermined term, usually 10 or 20 years. Your insurance coverage never decreases, and the premiums are guaranteed for the length of the Term Life Insurance
• As the name implies, term life insurance is an affordable insurance plan covering your loved ones for a specified period with a fixed premium amount. This plan is ideal for people who have a limited budget or plan to financially secure their children till they turn adults or need insurance coverage to meet life expenses like debts, mortgage, funeral expenses, or rent. Term life insurance offers coverage up to $10 million and provides tax-free payments to the beneficiaries if the policy is active at the time of your death. If the policy is due to expire or you plan for a lifetime insurance coverage, you can opt to convert your term life policy into a permanent or universal life insurance at any time before the age of 71.

Whole life insurance

Whole life insurance is a type of permanent life insurance. The coverage does not come with an expiry date; instead, it lasts for as long as you pay the premiums. Lifelong coverage, however, is not the only difference between term and whole life insurance. Whole life policies also include a savings component, called cash value, which grows over time on a tax-deferred basis. Which means no taxes are paid until you withdraw the cash value. As a result, your money grows at a faster rate than it would in a bank saving account.

The life insurer divides your whole life premiums into three portions:

• One part covers the cost of insurance
• One part takes care of the administrative fees
• One part funds the cash-value account

The insurer invests the money in the cash-value account into a conservative-yield form of investment. Since whole life policies promise a guaranteed minimum return, you are protected against severer market fluctuations. But when the insurer’s investments perform well, you earn a better return.

Generally, the cash value grows at a slow pace in the first few years and then picks up the pace later. As you grow older, the cash value growth rate slows down again as a greater chunk of your premium payments is used to cover the cost of insurance.

Your policy’s face amount (that is, the death benefit) is for your loved ones while the cash value is available to you while you are still alive. If you do not use all of it, the insurer claims the remaining cash value. When you die, your loved ones receive only the death benefit, not the unused cash value.

So, how can you tap into your policy’s cash value? You can access it in many ways, such as:

• to increase the death benefit
• to take out a loan
• to make a withdrawal
• to pay life insurance premiums

However, lifelong coverage and a built-in investment account — the two main features of whole life insurance — come at a price. If you want a whole life policy, expect to pay six to 10 times more than a comparable term life plan. All the same, whole life insurance can be a good option for some people, despite the high cost.

Who should consider Whole Life Insurance?

You may want to consider it if you:

• Have a lifelong dependent – Parents of a child with special needs or someone else with a lifelong dependent may find whole life insurance a better option. That is because it pays out the death benefit to your beneficiaries regardless of when you die, as long as the policy is active.
• Want an additional investment vehicle – Affluent people who have already maxed out traditional investment vehicles may find the cash-value component to their liking. It gives a better return than a bank savings account, though the interest rate is not as high as most traditional investment options.
• Wish to leave an inheritance – If you want to leave money for your loved ones or a charity, a whole life plan could make sense for you.
• Want to preserve the value of your estate – Certain costs, like probate fees and taxes, can chip away at the inheritance you want to leave your family. Putting a whole life insurance plan in place can ensure your loved ones inherit all the money you intended them to receive after your death.

Pros and cons of Whole Life Insurance

Just like any other financial product, whole life insurance comes with its own set of advantages and disadvantages.

Pros	Cons
Coverage lasts your entire life	Costs significantly more than term life insurance
Policy builds cash value that you can tap into during your lifetime	Rate of interest is lower than what traditional investment vehicles offer
Guaranteed minimum rate of return on the cash value	High administrative fees
A guaranteed death benefit

Universal Life Insurance

Life insurance comes in many different types. One of these types is universal life insurance. Universal life insurance is a type of permanent life insurance. Unlike term life insurance, which is written to cover a specific period, universal life insurance can provide lifetime coverage.

Universal life insurance offers certain advantages that other types of life insurance policies do not. At the same time, there are some drawbacks and risks, and this policy type may not be appropriate for everyone

Universal life insurance is like buying a permanent insurance and investing money at the same time in the same form of insurance. In Universal Life the premiums you pay would go into a holding account and the insurance company would invest that money in other investments or funds. This money is tax free, and you can also take loan against this amount. The company includes in your contract a minimal guaranteed interest rate on the money in your account. The investment inside the policy grows tax-deferred and can potentially be tax – free. The advantage of Universal Life is that if you have surplus savings, you need not pay the premiums.

Many people consider universal life insurance to be an attractive option because it offers the following advantages:

• Have financial security and would like to grow the assets.
• Can also use as Lifelong Tax-Free Income Plan. (Insured Retirement Plan)
• You can increase or decrease the face value of insurance
• You can add additional lives insured (subject to their insurability)
• You can substitute one life insured for another (subject to their insurability)
• You change the amount, timing, and frequency of deposits
• Universal life insurance is more flexible than any other product.
• The cash accumulated in a universal life insurance account allows for greater wealth accumulation than taxed investments.
• Guaranteed interest rate – Cash value is guaranteed to keep growing.
• Adjustable coverage for changing needs
• Are looking for tax-sheltered growth for non-registered assets.
• Are about to retire and want to preserve their estate.
• The policy builds a cash value that can be accessed during the policyholder’s life, for example, through a loan or withdrawal.
• The policyholder can adjust the premium payments if the payments are sufficient to keep the policy in force.
• If the market performs well, the cash value will grow accordingly. This can result in substantial gains.
• The death benefit can be increased, providing a greater benefit to the policy’s heirs.
• Cash value growth has a tax deferred status. Life insurance policy loans and death benefits are also typically tax free.

The Disadvantages of Universal Life Insurance

Although the flexibility of universal life insurance can be attractive, there are some downsides. Before purchasing a universal life insurance policy, it’s important to consider these disadvantages carefully, as some of them could result in the lapse of your policy or a reduction in benefits.

• The policyholder may need to pay various fees. Before purchasing a policy, understand the costs involved.
• Market losses may reduce the cash value. This can result in substantial losses.
• The policy will lapse if the premiums are not maintained and there’s not sufficient cash value to cover the missed premium