Life Insurance 101

Who buys term life insurance?

  • Families buy term life insurance for security. If the insured dies, their term life insurance policy provides money to pay for home expenses, college, outstanding loans and other major expenses
  • Small Business Owners use term life insurance as a low cost debt protection to cover notes, lease obligations, business real estate mortgages and other expenses.
  • Business Partnerships use term life insurance to buy out partners in the event of their death. The deceased partner’s beneficiary gets the insurance proceeds and the ownership of the company is then transferred to the remaining partner(s).
  • Corporations use term life insurance as stock purchase redemptions. For example, the corporation gets the insurance proceeds and buys back the stock from the deceased's beneficiary, normally the surviving spouse or estate.
  • Term life insurance can provide real benefits for the beneficiaries with no negative cash flow impact on the company.

What term life insurance will do for you?

  • Pays death benefit to your beneficiary that: 1) covers your final expenses, and 2) provides a lump sum that they can invest to meet your dependents needs.
  • Covers you for the full amount of life insurance you choose for a specified period of time.
  • Is convertible and renewable depending on the policy.
  • Gradually increases annual premiums as you get older.
  • Is a good choice to meet temporary insurance needs.

What term life insurance doesn't do?

  • It doesn't provide a cash value account.
  • It doesn't provide you permanent life insurance protection.
  • It doesn't fund expected federal and/or state estate tax obligations.
  • It doesn't fund an irrevocable life insurance trust.
  • It doesn't fund trusts for the purpose of providing an estate.

What is level term life insurance?

Term Life Insurance is insurance "without the frills"; there are no tax deferred savings, cash build up plans or forced savings plans, as with universal or whole life insurance. Term life insurance is a fixed term insurance policy which guarantees to pay a specific benefit if the events you have chosen to include occur within that term. The "term" is the period of time over which you are covered and you choose what that "term" is going to be; it could be 5,10 or even 25 years. Level term means that your premiums will remain the same or "level" during the time or term that you have selected. So if you chose a 15 year level term life insurance policy, your premiums would remain the same for the 15 year period - guaranteed. If cost is the major concern for you, level term life insurance is the bet option for you.

Term life is the least expensive and most immediate way to provide a cash pay out to your beneficiaries (usually your family).

What is decreasing term insurance?

Decreasing term insurance is a product that provides level premiums with a decreasing death benefit. It is also sometimes referred to as ‘Mortgage Insurance’, as banks market this product for mortgage protection. It is a great money earner for the banks but not for the insured. For every year that you are paying the insurance premium to the bank, your death benefit goes down. So the bank is on to a win-win situation, they get money from you each month and at the end of the contract they pay you less than the sum you calculated you needed as death benefit!

What is the difference between Universal Life Insurance and Whole Life Insurance?

Both whole life and universal life products are types of cash-value life insurance. However, there are important differences between them.

  • Whole life policies require the payment of fixed, level premiums and provide level death benefits, while universal life insurance policies offer adjustable death benefits and flexible premiums that can be varied according to changing circumstances.
  • However, whole life insurance policies do show some flexibility in that policy owner dividends can be used to offset a portion of the premium payment and can be used to increase the policy's death benefit.

Is universal life insurance or whole life insurance a better financial deal?

This is a complex question with no simple answer. The best performing product, financially speaking, whether it’s universal life insurance or whole life, will be the one that has the best future in relation to interest earnings, actual expenses and mortality costs.

The insurance company that is earning the highest investment income, and also incurring the lowest expenses and the lowest mortality costs, are more than likely to offer life insurance at the lowest cost irrespective of whether it’s whole life or universal life insurance.

This is why it is so important to get the best advice possible and where our experience of over 35 years really counts. We will carefully examine all the financial aspects of each insurance product under consideration before we recommend one to you.