Life Insurance, What's The Right Choice?
Term or Cash Value
The two main types of life insurance are term and cash value.
Many people, realizing their insurance needs may change over
time, select a combination of the two.
Term life insurance provides protection for a specified
period. Term insurance is straightforward coverage without
the extra features you may not need or be able to afford.
It is designed to pay an income tax-free death benefit to
a chosen beneficiary or beneficiaries, but only if you die
during that term. Most people find they can buy large amounts
of term insurance at affordable premiums, which can mean a
lot if you are supporting a young family or building a business.
Term insurance can also serve as a supplement to other insurance
policies you may already own. Keep in mind that insurance
premiums increase as the insured ages. With level term insurance,
the death benefit and premiums remain level for a specific
time, usually 5, 10, 15, 20 or 30 years, or to age 65. This
coverage may be suitable if your children will be dependent
on you for a number of years, perhaps to supplement other
insurance policies you may own.
Cash value insurance provides current cash values
in the policy in addition to the death benefit. Cash values
come from the premiums you pay in early policy years that
exceed the actual cost of insurance. In later policy years,
these cash values may increase, so the premium you pay can
remain level. If for any reason you elect not to continue
your coverage, you will have access to the cash value. You
may use the cash value for emergencies and other needs, or
it can be used as supplemental retirement income. Whole life
insurance is sometimes called "ordinary" or "straight"
life. While term insurance provides for a specified time frame,
whole life provides lifetime protection. It has guaranteed
death benefits typically to age 100, and cash values and premiums
that remain level for the whole of the insured's life.
Universal life insurance was created in the late 1970's
with greater flexibility as its goal. Both premium payments
and death benefits can vary. It's basically term insurance
with a side fund. You can put more money or less money into
the side fund so you can create tax- deferred savings without
being locked into a set rate for premiums over the life of
the policy. While the savings are at money-market rates, your
level of risk is less than the Variable life insurance.
Variable life insurance is a form of whole life that
combines insurance protection with an investment component.
It is similar to universal life with two major exceptions.
First, the insurer lets you invest in the various funds that
comprise their sub-account under this policy. Subject to certain
limitations you can transfer among these funds WITHOUT tax
consequence. Second, you are assuming ALL of the investment
risk. You may get high returns or you may experience losses.
The death benefit and cash values vary according to the investment
experience of a sub-account maintained by the insurance company.
The premium is usually level and guaranteed to not increase,
but the cash values are not guaranteed, and you may actually
lose money.
With interest rates at their lowest levels in decades many
consumers are repositioning their debt through mortgage refinancing,
lowering their monthly mortgage payments and using the new
found disposable income to invest in insurance to fortify
their estates. Mortgage and Insurance professionals are currently
teaming up to review their clients insurance and mortgage
positions to take advantage of today's low rates. Because
of the complexity and confusion of so many product offerings
in both the insurance and mortgage industry, many consumers
are quickly discovering "surfing the web" is not
the solution to find the "lowest rate" product.
The goal is to find "THE RIGHT" product combination
through using the services of a trusted advisor.
The purpose of this newsletter is not to give legal, insurance
or tax advice. The purpose is to stimulate thought for Credit
Union Members.
For prompt courteous quotes call your Credit Union financial
services representative, Thomas R. Lovell, CFP.
Securities offered through Cadaret Grant & Co., Inc. Member NASD/SIPC, PPG and CG are separate entities. Securities and/or insurance products not insured by FDIC/NCUA or any government agency. May lose value. Not a deposit of or guaranteed by any bank, credit union or any affiliates. Licensed in AZ, CA, CO, CT, GA, ID, MA, ME, NC, NH, NJ, NY, PA, VA, VT and WY.
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