Hello, and welcome back to the Successful Financial Strategies blog! We post regularly about relevant topics that are both practical and informational. We want to provide you with the tools that you need to help you make wise investments and prepare you for the future, as well as offer information about the implications of large-scale financial events and their effects on your assets and financial strategy. For more specific information about your financials, reach out to our wealth management experts at our Arden or Henderson offices for guidance that is always focused on helping you achieve your financial goals.
Today, on the Success Financial Strategies blog we are going to discuss life insurance and how it can be a valuable asset to your financial plan.
Life Insurance Basics
Most people, if you ask them about life insurance, will have some idea about what it is; “It gives your loved one’s money when you pass away” or “It is a backup plan” are a couple of answers we get when we ask our clients what they think the benefits of life insurance are. However, there is so much more to life insurance and so many ways that it can be used to benefit your financial goals. Before we dive in, let’s begin with the absolute basics: types of life insurance.
Term Life Insurance
Term life insurance is exactly what it sounds like. It is a policy that is held for a certain, predetermined amount of time. Usually, term policies last for five, 10, 15, 20, 25, or 30 years and can sometimes be extended to last, for example, an additional five years past when it was originally agreed upon. A term life insurance policy can also last to a specific age of the holder. Additionally, some policies allow holders of this type of life insurance to convert it over to a permanent or whole life insurance policy.
Within the term life insurance category, there are a couple types: level term and decreasing term. Level term means that the death benefit stays the same the entire time that you hold the policy and decreasing term means that the amount decreases with the life of the policy.
Permanent Life Insurance
Permanent life insurance, on the other hand, lasts until you die and can provide a variety of advantages depending on the type of policy that you buy. Unlike term insurance, whole life insurance provides a lot of options because it is a permanent policy. Permanent types offer a death benefit and can act in its most basic understanding as a savings account with the option to borrow against the death benefit. Like term, permanent comes in a variety of policy types.
There are four basic types of permanent life insurance: Whole life insurance, universal life insurance, variable life insurance, and variable-universal life insurance.
Whole Life Insurance
Whole life insurance, also known as ordinary life insurance, is the most basic of the permanent life insurance policies: when you buy this policy, you are agreeing to pay premiums that will stay the same throughout the life of the policy for a specific amount of death benefit.
Universal Life Insurance
A universal life insurance policy, also known as an adjustable life insurance policy, provides more flexibility in that it offers the option to increase the death benefit amount and there is usually a cash value as well that earns interest like a money market rate.
Variable Life Insurance
Variable life insurance is a great option for those who have a greater threshold for risk. In addition to having a death benefit, the savings part of your policy can be invested in stocks, bonds, and money market mutual funds. If your investments perform well, you have the opportunity to grow your investment exponentially. However, if your investments don’t perform well, the policy’s cash value and death benefit could decrease substantially.
Variable-Universal Life Insurance
This type of policy combines the benefits of a variable policy with that of a universal policy. The growth of your investments is still based on a variable like stocks, but you also have the flexibility to change your premiums and, subsequently, your death benefit like you can in a universal life insurance policy.
We hope that you know a little bit more about life insurance. Whether you think you know which policy you need or you’re even more confused. Contact our wealth management experts at our Arden or Henderson offices! We would love to help you choose the right policy for you!