Life insurance products can be organized into two main categories: Term Insurance (temporary protection) and Permanent Insurance (lifetime coverage with cash value). Understanding these categories is fundamental to matching clients with appropriate coverage.
Overview: - Provides pure death benefit protection - Coverage for specific time period (term) - No cash value accumulation - Most affordable option - Premiums increase with age at renewal
Common Term Lengths: - Annual Renewable Term (ART) - 10, 15, 20, or 30-year level term - Term to age 65 or other milestone
Best For: - Temporary needs (mortgage protection, income replacement) - Budget-conscious buyers - Young families needing maximum coverage - Supplementing permanent insurance
Whole Life Insurance - Guaranteed level premiums for life - Guaranteed death benefit - Guaranteed cash value growth - May pay dividends (participating policies) - Most predictable and stable
Universal Life Insurance - Flexible premiums and death benefit - Cash value earns interest (current rate) - Adjustable coverage amounts - Transparency in costs and values - More flexibility than whole life
Variable Life Insurance - Fixed premiums - Cash value invested in separate accounts - Investment risk borne by policyholder - Potential for higher returns (and losses) - Requires securities license to sell
Variable Universal Life (VUL) - Combines features of universal and variable - Flexible premiums - Investment options in separate accounts - Maximum flexibility and risk - Requires securities license
Indexed Universal Life (IUL) - Cash value tied to stock market index - Downside protection (floor) - Upside cap on returns - No direct market investment - Growing in popularity
| Feature | Term Insurance | Permanent Insurance |
|---|---|---|
| Duration | Specific period | Lifetime |
| Cash Value | None | Builds over time |
| Premium | Lower initially | Higher but level |
| Purpose | Temporary needs | Lifetime protection |
| Cost | Most affordable | More expensive |
| Investment | None | Savings component |
What is an Annuity? - Insurance against living too long - Converts lump sum into income stream - Guarantees income cannot be outlived - Opposite purpose of life insurance
Types of Annuities:
By Premium Payment: - Single Premium: One lump sum payment - Flexible Premium: Multiple payments over time
By Payout Start: - Immediate: Payments start within one year - Deferred: Payments start in future (accumulation phase first)
By Investment Type: - Fixed: Guaranteed interest rate and payments - Variable: Invested in separate accounts, payments vary - Indexed: Returns linked to market index with protections
Group Life Insurance - Employer-provided benefit - No individual underwriting (for basic amounts) - Usually term coverage - Often convertible to individual policy
Credit Life Insurance - Pays off loan if borrower dies - Decreasing death benefit matches loan balance - Creditor is beneficiary - Often overpriced
Final Expense Insurance - Small permanent policies ($5,000-$25,000) - Covers funeral and burial costs - Simplified underwriting - Aimed at seniors
Key Person Insurance - Business owns policy on critical employee - Protects against financial loss from death - Death benefit to company - Premium not tax deductible
Consider: 1. Purpose - Temporary need or permanent protection? 2. Budget - How much can be afforded? 3. Risk tolerance - Comfortable with investment risk? 4. Flexibility needs - Need to adjust coverage/premiums? 5. Time horizon - How long is protection needed? 6. Cash value goals - Want savings component?
General Guidelines: - Term for temporary needs and maximum coverage - Whole life for guaranteed, predictable protection - Universal life for flexibility - Variable products for investment growth potential - Combination strategies often work best
Life insurance products can be organized into two main categories: Term Insurance (temporary protection) and Permanent Insurance (lifetime coverage with cash value). Understanding these categories is fundamental to matching clients with appropriate coverage.
Overview: - Provides pure death benefit protection - Coverage for specific time period (term) - No cash value accumulation - Most affordable option - Premiums increase with age at renewal
Common Term Lengths: - Annual Renewable Term (ART) - 10, 15, 20, or 30-year level term - Term to age 65 or other milestone
Best For: - Temporary needs (mortgage protection, income replacement) - Budget-conscious buyers - Young families needing maximum coverage - Supplementing permanent insurance
Whole Life Insurance - Guaranteed level premiums for life - Guaranteed death benefit - Guaranteed cash value growth - May pay dividends (participating policies) - Most predictable and stable
Universal Life Insurance - Flexible premiums and death benefit - Cash value earns interest (current rate) - Adjustable coverage amounts - Transparency in costs and values - More flexibility than whole life
Variable Life Insurance - Fixed premiums - Cash value invested in separate accounts - Investment risk borne by policyholder - Potential for higher returns (and losses) - Requires securities license to sell
Variable Universal Life (VUL) - Combines features of universal and variable - Flexible premiums - Investment options in separate accounts - Maximum flexibility and risk - Requires securities license
Indexed Universal Life (IUL) - Cash value tied to stock market index - Downside protection (floor) - Upside cap on returns - No direct market investment - Growing in popularity
| Feature | Term Insurance | Permanent Insurance |
|---|---|---|
| Duration | Specific period | Lifetime |
| Cash Value | None | Builds over time |
| Premium | Lower initially | Higher but level |
| Purpose | Temporary needs | Lifetime protection |
| Cost | Most affordable | More expensive |
| Investment | None | Savings component |
What is an Annuity? - Insurance against living too long - Converts lump sum into income stream - Guarantees income cannot be outlived - Opposite purpose of life insurance
Types of Annuities:
By Premium Payment: - Single Premium: One lump sum payment - Flexible Premium: Multiple payments over time
By Payout Start: - Immediate: Payments start within one year - Deferred: Payments start in future (accumulation phase first)
By Investment Type: - Fixed: Guaranteed interest rate and payments - Variable: Invested in separate accounts, payments vary - Indexed: Returns linked to market index with protections
Group Life Insurance - Employer-provided benefit - No individual underwriting (for basic amounts) - Usually term coverage - Often convertible to individual policy
Credit Life Insurance - Pays off loan if borrower dies - Decreasing death benefit matches loan balance - Creditor is beneficiary - Often overpriced
Final Expense Insurance - Small permanent policies ($5,000-$25,000) - Covers funeral and burial costs - Simplified underwriting - Aimed at seniors
Key Person Insurance - Business owns policy on critical employee - Protects against financial loss from death - Death benefit to company - Premium not tax deductible
Consider: 1. Purpose - Temporary need or permanent protection? 2. Budget - How much can be afforded? 3. Risk tolerance - Comfortable with investment risk? 4. Flexibility needs - Need to adjust coverage/premiums? 5. Time horizon - How long is protection needed? 6. Cash value goals - Want savings component?
General Guidelines: - Term for temporary needs and maximum coverage - Whole life for guaranteed, predictable protection - Universal life for flexibility - Variable products for investment growth potential - Combination strategies often work best