Life Solutions

A type of life insurance that provides temporary coverage for a declared length of time: typically 10, 15, 20 or 30 years. The insured pays a fixed rate for the length of the term. If the insured dies before the end of the term, the full death benefit is paid out to their designated beneficiaries. Otherwise, coverage expires at the end of the term and the insured must either forfeit the coverage or apply for new or extended coverage with new rates, as stipulated by the insurance company.

Universal life insurance (UL) is a type of cash value life insurance. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate (often 2%). Such policies offer the advantage of guaranteed level premiums throughout the insured’s lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table.

A type of flexible, permanent life insurance similar to Universal Life but with higher upside potential. The cash value grows tax-deferred at an interest rate based on the performance of stock indices-typically the S&P 500, Nasdaq, or other international indices. Fixed IULs also provide a minimum guarantee, as determined by the insurer. Premium payments are an amount higher than the cost of insurance, which goes toward crediting the cash value of the policy. The policy owner may choose to pay premiums either annually, semi-annually, quarterly or monthly, which covers the cost of insurance charge and any other applicable policy fees. If the cost of insurance ever rises above the amount of paid premium, the excess charges are deducted from the policy’s cash value.

Whole life insurance provides coverage for the life of the insured. In addition to providing a death benefit, whole life also contains a savings component where cash value may accumulate. Whole Life insurance policies are also known as permanent, traditional life insurance, straight life or ordinary life. Whole life insurance has fixed premium payments that typically cannot be missed without lapsing the policy, although one may exercise an Automatic Premium Loan feature, or surrender dividends to pay premiums.

A type of life insurance intended to cover the cost of burial and funeral expenses. Final Expense Insurance is a Whole Life Insurance plan and can be purchased later in life than most other life insurance plans. Typically, Final Expense Insurance carries a small face amount—usually between $5,000 and $50,000.

A type of life insurance that builds a cash value. The cash value can be invested in a variety of separate accounts, typically mutual funds. Separate account allocation decisions will be made by the policy owner. The ‘variable’ component in the name refers to this ability to invest in separate accounts whose values vary—they vary because they are invested in stock and/or bond markets. The ‘universal’ component in the name refers to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance. This flexibility is in contrast to whole life insurance that has fixed premium payments that typically cannot be missed without lapsing the policy.

Funeral or Burial Insurance is usually a small, guaranteed issue life policy that can be assigned to a funeral home or an irrevocable funeral trust. Proceeds from the policy are typically used to cover basic funeral expenses and are paid directly to the funeral home, cemetery, or family members who have incurred funeral expenses. Plans can range in face amount from $1,000 to $15,000, and in many states are “exempt” for purposes of Medicaid qualification.