While the idea of life insurance itself is not that complicated, when it comes to the various options available to an individual to purchase, it can be confusing. Insurance is a device used to provide protection against a possible eventuality, or in the case of life insurance, a definitive eventuality in death.
The two primary types of life insurance available in the marketplace are term and permanent. The attributes of each are:
Term – the most basic form of life insurance. This policy is time-based in that you choose a dollar amount that you want your beneficiary to receive upon death and if you die during the stated “term” of the contract, your beneficiary receives the chosen dollar amount as a death benefit. Most term policies are from one to thirty years and policy amounts typically vary from $250,000 to $1 million, but can certainly go higher.
Permanent – provides protection for the entire life of the insured while also generating a cash reserve that can be made available to the policy owner during the insured’s lifetime, assuming premiums are paid according to the terms of the insurance contract. There are 3 types of permanent policies:
- Whole Life – set up so that both the premium you pay and the death benefit eventually received remain the same (level) throughout the life of the policy. This is relatively straight forward in that the premium you pay at a younger age is the same premium you pay as you get older, and as long as you pay the premium, you have coverage.
- Universal Life – offers more flexibility than a traditional whole life policy by allowing the policy owner the ability to adjust the premium, death benefit, or cash value to meet their financial goals.
- Variable Life – allows the policy owner to direct the investments of the policy’s cash values among variable subaccounts and therefore the policy owner bears all of the investment risk. Because of the investment aspect, individuals interested in this type of insurance policy should have higher-than-average risk tolerance compared to owners of the aforementioned policies.
We at HCM do not sell any form of insurance. Anyone interested in acquiring a policy should do their research and consult a qualified life insurance agent. What we at HCM do, however, is help our clients understand what the impact of having, or not having, life insurance has on their financial planning success rates.
If you’d like to explore this area further, please contact Jim via email [email protected] or 513-598-5120.
Date Posted: 09/19/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence. If you would like to discuss your Wealth Accumulation or Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120. Located in Cincinnati, Ohio, we serve clients in 23 states, and we’d love to help.