Types of Life Insurance

Types of Life Insurance

Welcome

Welcome back to this episode of Finding the Need. Financial Advice founded in Faith. Have your coffee? ‘Cause now we’re going to start talking about different types of protection mechanisms (also known as types of life insurance). What are the different types that you’d have out there? Well, there’re actually not that many, and most of them have their own spin to them. But, what we can do is break it down to some simple, simple concepts. There are products called term insurance. There are products called indexed. There are universal products. There are variable universal products. And there are whole life products. 

Term Insurance

So let’s start with the basic, simple one that most people understand, and that’s term insurance. Term insurance is just like the word says. It’s for a term. Now that could be the term of your employment, if you’re using the company’s plan, or it could be the term that you’re purchasing in a contract. It could be the term, like if you’re in the military and you have SGLI. That’s going to be the term that you’re into the military, and when you’re out of the military that term insurance typically goes away. When you are no longer working for that employer, that term insurance typically goes away. 

Reasons for Term Insurance

So, why do you have term? Term is the least expensive product to purchase. Why? Because the companies that sell it, our company is no different. We know that the great majority of the time, more than 90 percent of the time, you’re not going to die during the term of that contract, so if you have a million dollar term, and you’re spending a hundred dollars a month on it, at the end of 20 or 30 years, that term is going to expire, and we are pretty certain that that term is going to expire while you’re still alive. 

Pros & Cons of Term Insurance

So is it cheap? Absolutely. Is it for the long-term? Absolutely not. Is it part of a foundation plan for a family or business? It sure is, but it needs to be parlayed, partnered if you will, with another type of insurance. And that other product can be a universal product, it can be a whole life product, and it can be an indexed whole life or indexed universal product. 

Universal Products

Universal products are basically like a term product for life, but you’re over funding it through your working years. You’re putting more money in it than what the company says you have to do. It’s called a target premium. So with that universal product, you have to, you, meaning the owner, have to be diligent about making sure you put more money in that product every year. Because as we get older, we become more expensive, and in order to keep that product working the way it was intended, you need to keep over funding that product. 

Difference Between Universal and Variable Products

And the difference between that and one that’s a variable means that you’re now, the variable one, is now playing in the market, if you will. You can invest in certain funds, stocks, possibly, and indexes. And those are a little bit more risky, but on the other side, they can also produce a lot more income for you going down the road. 

Whole Life Products

A whole life product, like a universal product, is considered an asset because you’re going to be using that for life. You’re not just going to be using it for passing along upon your death. This is a product that can be designed by your advisor to do certain types of things for you. It can help you pay off a mortgage early; it can help pay for college. It can help to pay for leasehold improvements in your business. It can help to pay for many things, and then if you want it to when you go into retirement, you can use that to offset your retirement life. Set up, if you will, like a pension. So there’s many things that you can do. 

Non-Participating Whole Life Products

Now within that world of whole life insurance, there are two types, typically. There is a participating whole life policy and there is a non-participating. In our industry it’s called par and non-par. So a non-par policy is a whole life policy that has a fixed death benefit and you make a payment for x number of years. Typically you’re making a payment for life. The value, the cash value within that policy, typically is just an excess of what you’ve been putting in for premium, and the company doesn’t participate. So, if you wanted the simplest way, you can look at it like that. 

Value of a Participating Plan

So a participating plan, usually a little bit more expensive than a whole life plan, is because it is growing exponentially. You know, you’re putting in your money, it’s earning an interest rate and varies from the company to company, and it may be earning a dividend. Remember, dividends are never guaranteed by any company, but to get a dividend-producing product really helps build those assets. 

Summary of Product Options

So those are usually the types of life insurance that are very popular and can be used for many things. So to recap again, you have three basic types of protection products. You have a term product, which is very inexpensive but will end before you die, more than likely. Number two, a universal product, which is like a hybrid between a term and a whole life. And then number three, the whole life product itself, which is one that has a guaranteed premium, has a guaranteed benefit for life and depending upon whether you purchase a participating product or not, participating product, will depend upon how much it could possibly grow throughout your life and the different uses there. 

Conclusion

So, I hope you had your coffee. I hope that you took some notes and I hope that you visit with your advisor and make sure that you ask these questions if he hasn’t already told you about these three different types of products. Have yourself a good day.;

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Watch This Series from the Beginning

Check out the first video in this series, "Introduction: Finding the Need" with host Bob Abbate. In this introduction, Bob will guide viewers on how to protect one's family, assets, investments, and also one's business. He will do this in a Catholic-centric way and in a way that is centered around the three Fs: faith, family, and finances.