Money Matters – What are the principal types of life insurance?

 There are two major types of life insurance—term and whole life. Whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life.  Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance sold to individuals.  Historically Term Life insurance policies issued are close to 40 percent while whole life or a variation make up the reaming 60 percent of the market.
Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.
There are two basic types of term life insurance policies: level term and decreasing term.
Level Term means that the death benefit stays the same throughout the policy term.  It can be bought in 10, 15, 20, and 30-years terms. I recommend to all my clients that they purchase the longest term they can afford, reason being that if any catastrophic medical injury or illness occurs as long as one can pay the premium the insurance stays in effect.  If you take a short term and a physical or medical calamity occurs it will be both more difficult and expensive to get a replacement policy at an older age as well.
Decreasing Term is what most banks that do home mortgages offer their respective clients – that being the insurance payment remains the same but the payout goes to zero after the 30-year mortgage has been paid off, i.e. the insurance payout mirrors the declining mortgage balance.  I do not recommend this type of insurance.
Within Term Insurance there are two other plans of which I will only mention, those being Endowment Plans – pay out the sum assured under two scenarios – death and survival; and Unit Linked Insurance Plans (ULIP) – pay out the sum assured (or the investment portfolio if it’s higher) on death/maturity. There is a variation of the Endowment Plans called The Money Back Plan that allows payouts during the policy period.
Whole Life/Permanent
Whole life or permanent insurance pays a death benefit whenever you die—even if you live to 100! There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.
In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the company keeps the premium level by charging a premium that, in the early years, is higher than what’s needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.
By law, when these “overpayments” reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.
No matter type of insurance best suits you the dollar amount of the policy should follow these simple guidelines.
Coverage = all one’s mortgage debt, revolving debts (credit cards), installment debts (auto, boat, RV loans, etc.), at minimum 3-years of the deceased spouses gross income for the surviving spouse, domestic partner, etc.  If children are involved then there should be funds set aside for their higher education needs.
Feel free to call me if you have questions about your current life insurance policies, or if you need life insurance.  For more information, please call Douglas J. Sedam at 1-866-549-3900, 661-295-2400 #1 or email: Doug.Sedam@ThePaseoGroup.com.  You may also learn more at www.ThePaseoGroup.com.
Securities and Investment Advisory Services offered through Financial West Group which is a member FINRA/SIPC. OSJ Office: 4510 E. Thousand Oaks Boulevard, Westlake Village, CA 91362, Phone: 1-866-502-8929 The Paseo Financial Group, Inc. and Financial West Group are unaffiliated companies. The Paseo Financial Group, Inc. encompasses the following companies: The Home Loan Pros – Residential, Investment, & Commercial Real Estate Mortgages; Oak Tree Realty – Residential, Investment, & Commercial Real Estate Sales; and The Financial Services Pros – Investments, Insurance, & Retirement Planning.