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Life Insurance can be very easy to understand
Just about everyone needs life insurance. Life insurance is basic financial protection for your family. Because families are different and circumstances are different, types of life insurance are different.
The role of life insurance is to provide a lump sum of money (the "death benefit") in the event of your death to:
- Cover your debts, including the mortgage
- Provide an income while the family makes the transition to continuing without you
- Provide a nest egg for family or a favorite charity
- Make sure children have money for post-secondary education
- Provide money to pay for burial expenses
How Do Different Types Of Life Insurance Meet Different Types Of Needs?
Term insurance may be attractive to those who have an immediate need over a specified period of time and who wish to select the largest death benefit which their premium dollar can purchase over that period. Term insurance pays a death benefit only if you die during its term.
Coverage expires at the end of a specified term, which depends on the type of policy you purchase, unless your policy permits you to renew it for a further term, or you have a contractual right to convert it to permanent life insurance.
Term insurance does not build up cash value.
Whole Life is a permanent life insurance, which may accumulate cash value on a
tax-deferred1 basis over time. This cash value can be borrowed against if need be. Generally, premiums remain at a fixed level for the entire length of the contract and the contract has a specified death benefit. Many people appreciate this feature, because it means their premiums will never go up, regardless of age or health, once the policy is issued (a particular advantage if you're young).
This type of coverage also "locks in" your insurability as long as your insurance remains in force, which means you don't have to worry about an increase in the cost of your insurance if you acquire certain medical conditions in the future. Your coverage, your premium and your benefit are assured.
For some people, Universal Life insurance provides the flexibility they want. Like whole life insurance, a universal life policy builds your cash value which is available to you at all times - through the premiums you pay and the interest earned. However, universal life coverage offers three valuable features in addition to the cash value build-up:
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Flexible Premiums – Not only can you choose the premium you want to pay (within the minimum needed to keep the policy in force and the maximum allowable), you can change the amount at any time.
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Flexible Death Benefit – Universal life insurance allows you the flexibility to increase or decrease your life insurance death benefit within the same policy. As your income and assets increase, your coverage can be increased to protect them without having to buy another policy to supplement your original one.
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Guaranteed Minimum Interest Rate on Cash Value –
The policy's accumulation value comes from the timely payment of premiums over the life of the contract. The monthly cost of insurance, policy loads and administration fees are deducted from this account. The remaining cash value accumulates,
tax-deferred2 , at a current interest rate. The interest rate is guaranteed not to fall below a minimum rate as described in the policy.
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With Variable Universal Life3, your premiums - after deductions for costs of insurance, policy and administrative fees - are invested in sub-accounts managed by world-class money managers. In addition to life insurance, you also get growth potential. How do you decide how much insurance is enough? How do you know what to choose?
Did you know that as you get older the same coverage costs more regardless of what type of insurance you
prefer? Because as people age they tend to have more health problems and are more likely to pass away, and that affects the cost of supplying the insurance. So it's generally
a better value to start
early.
So what's the next move?
A key to understanding life insurance is to have one person you can trust and work with. A
Foresters representative can help you choose the right insurance for your life and help you understand how insurance fits into an overall financial
strategy.
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