Do you know what kind of life insurance you need?
When loved ones depend on your salary, the type of life insurance you have is a vital
component of your overall financial plan. Upon your death, a life insurance policy will pay your beneficiary a lump sum that can replace lost income, reduce or eliminate debt, cover funeral expenses, and/or educate your children.
There are three types of life insurance to choose from:
1. Term Life Insurance, which covers an individual for a specific period of time (a
“term”). The length of the term depends on the specific policy you choose, but common
options include 5, 10, 20 and 30 year options. There are two types of term life insurance:
- Annually Renewable Term: Premiums start lower and increase each year.
- Level Guaranteed Term: Premiums and death benefit remain level for the entire term of the policy.
Term life insurance policies have the least expensive premiums compared to other types
of life insurance.
2. Whole life insurance, which provides long term benefits, guaranteed premiums and
guaranteed death benefits. A distinct difference between term and whole life is that
whole life has the added benefit of “cash value” potential. With whole life:
- A portion of your premium goes towards building cash value from investments made by the insurance company.
- When the investment turns a profit, the policyholder benefits.
- Loans can be taken against the cash value because whole life policies have an investment and return component (known as the “cash value”).
Whole life insurance premiums are the most expensive of all types of life insurance.
While you will pay more for a whole life policy, as opposed to a term life policy, premium
rates are locked for life and your policy will never expire.
3. Universal Life Insurance (UL), which is a type of flexible, permanent life insurance
that offers the low-cost protection of term life insurance, as well as a savings element
that is invested to provide a cash value build-up. Universal Life Insurance policies:
- Are flexible – the death benefit, savings element and premiums can be reviewed and altered as a policyholder’s circumstances change.
- Allow the policyholder to use the interest from his or her accumulated savings to help pay premiums.
- Have a flexible premium that can adjust to changing needs. Your policy’s cash value earns interest based on a contractually stated financial index (or a blend of indices), and this growth is tax deferred. You can access your cash value almost anytime, tax-free (as long as the policy remains in-force).
Insurance premiums on individual life insurance policies are generally based on the type
and amount of insurance you buy and your chance of death while the policy is in effect,
as determined by your lifestyle habits (e.g., smoking), age, and medical
condition/history. For more information, contact Beacon Financial Group to speak to an
experienced, licensed advisor: 908-769-4333 x112 or
-The information contained in this article is for general information only. It is not intended to provide specific advice or recommendations for any individual and does not constitute an endorsement by NPC. Please consult with your financial professional before taking action
-Insurance guarantees are based on the claims-paying ability of the issuer.
-Policy loans and withdrawals will reduce the policy's cash value and death benefit. Loans are subject to interest charges.