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Types Of Life Insurance

Term Life
Term Life Insurance is strict protection providing a specified death benefit with a premium guaranteed for a specified number of years (the term).  Typically, premiums are guaranteed for 10, 15, 20 or 30 years.  At the end of the term, premiums increase significantly and renew annually thereafter.  Term insurance satisfies the need for protection for a specified number of years at a nominal cost.

Permanent Insurance
This type life insurance includes a death benefit and cash value component and is called “permanent” in that coverage can be maintained for one’s entire life.  The most common types of permanent insurance are Traditional, Indexed, Variable Universal Life and Whole Life.

Traditional Universal Life
Universal Life Insurance is a type of permanent life insurance where excess premium payments above the cost of insurance is credited to the cash value of the policy.  Each month the cash value is debited the cost of insurance charge and expenses, then credited with interest.  The interest rate is determined by the insurer, but has a contractual minimum.  Premium payments are flexible and the policy remains in force as long as there is sufficient cash value to cover the cost of insurance and expenses.  Cash value can be accessed through policy loans or withdrawals.

Indexed Universal Life
With this type of Universal Life, cash value growth is linked to stock indices such as the S&P 500, selected by the insured.  Interest crediting is usually never less than 0%.

Variable Universal Life Insurance
With this type of Universal Life, excess premiums are invested in separate accounts selected by the insured that invest in stocks or bond portfolios.  Premiums could increase and account values could decrease based on account performance.  This type Universal Life bears the greatest risk and potential for growth.

Whole Life
Whole Life Insurance is a type of permanent life insurance that remains in force for the insured’s whole life. Like Universal Life, excess premiums are credited to cash value where insurance costs and expenses are deducted and interest or dividends are credited.  Premiums are fixed and level and if paid every year, the life insurance death benefit is guaranteed for the life of the policy.

Determining the Appropriate Amount of Life Insurance
A sample rule of thumb is figuring you need 15 to 20 times your annual income.  Put another way, assuming a lump sum benefit were invested, what would it yield in terms of an annual income for survivors?  In order to accurately determine the appropriate amount of life insurance in order to satisfy your particular needs, a comprehensive needs analysis is recommended.