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Life Insurance
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Term Life
Term life insurance provides coverage for a specified term, such as 10, 20, or 30 years. Think of Term as “renting” your life insurance for a predetermined period of time. It can be ideal for individuals looking to ensure financial stability for their dependents in case of premature death during the policy term, and can accomplish this at a bare-minimal cost. For instance, a young family with children may opt for a 20-year term policy to cover mortgage payments, provide income replacement, and pay educational expenses in the untimely event of death.
Pros: Affordable premiums, straightforward structure.
Cons: No cash value, coverage ends after the term.
Whole Life
Whole life insurance offers lifelong coverage with a guaranteed death benefit and a savings (cash value) component. It can be suitable for those who want to ensure inheritance or cover estate taxes no matter when death occurs. Participating whole life policies pay dividends in addition to the fixed cash value crediting strategy, while non-participating policies do not. This is an important factor to consider when selecting a Whole Life carrier, as it will have a great effect on the growth or accumulation of cash value within the policy.
Pros: Lifelong coverage, cash value accumulation.
Cons: Higher premiums, less flexibility compared to other types.
Indexed Universal Life (IUL)
IUL policies offer great flexibility in premium payments and death benefits, with a cash value component linked to a stock market index (fixed crediting strategies are generally available as well, and diversification of multiple crediting strategies is possible simultaneously). Your cash principle is never directly invested in any index fund. Instead, insurance carriers purchase call-options for the index you choose. Index-linked crediting strategies utilize “floors,” which means your cash is protected when the market goes down, and you only “participate” in market gains. IUL policies can be incredibly powerful financial tools when used correctly. However, these policies are generally not well-suited for individuals who are unwilling or unable to contribute extra premiums or max-fund their policies to the IRS MEC limits.
Pros: Excellent potential for cash value growth when funded correctly, flexible premiums for unseen circumstances, cash value.
Cons: Complexity, potential for lapse if insufficiently funded.
Fixed Universal Life (FUL)
Similar to all other forms of Universal Life, this type of insurance offers flexible premiums and death benefits. The key differences between FUL and IUL are that FUL policies typically have lower fees and fixed-only crediting strategies. This can translate to lower premiums, but also limits the potential growth of your cash value. It can be a suitable choice for those seeking slightly more predictable (but often times lower) growth than IUL, all the while keeping the flexible payment options which are indicative of all Universal Life policies.
Pros: Flexible premiums, guaranteed interest rate, more predictable than IUL.
Cons: Lower cash growth potential compared to IUL (and potentially lower than some participating Whole Life policies), less guarantees than Whole Life.
Guaranteed Universal Life (GUL)
Guaranteed Universal Life insurance can potentially provide lifelong coverage with somewhat flexible premiums and a guaranteed fixed death benefit, making it suitable for individuals looking for permanent or semi-permanent coverage without the need for cash value accumulation. GUL can be an excellent alternative to Term insurance in some circumstances. Similar to Term, GUL policies have a set coverage period, but instead of choosing a term length, policyholders can select an age at which the coverage will end, typically between 90 and 121 years old. Because it’s uncommon to live to the upper end of this age range, GUL is often considered to be essentially lifelong coverage. However, if the guarantee period is shorter than the policyholder’s lifetime, they may face a significant premium increase in the future if they want to continue the guarantee past the original expiration date.
Pros: Guaranteed death benefit during coverage period, no-lapse guarantee, somewhat flexible premiums, less expensive than IUL and FUL.
Cons: Little to no cash value, can be extremely expensive to renew if the Insured individual lives past the coverage period.
Mortgage Protection
As its name would suggest, Mortgage Protection insurance is designed to pay off one’s mortgage in the event of the insured’s death. It’s ideal for homeowners who want to ensure their mortgage is covered, and provide stability for their family and home. Mortgage Protection is essentially a form of reducing-term insurance. As the term period progresses, the death benefit amount decreases gradually over time, eventually expiring at the same time your mortgage is fully paid.
Pros: Ensures mortgage is paid off, peace of mind for homeowners, lowest cost of insurance.
Cons: Limited coverage, only covers mortgage balance.
