Ryan Insurance & Financial Services

Individual life insurance: Is “term” or “cash-value” best for you?

by Sean Ryan on Aug 23, 2017

Life insurance, in its best form, can replace income, protect mortgages, fund college, plan estates, serve as supplemental retirement income, help with business planning and of course, pay final expenses upon your death. In its least-effective form, it inadequately covers end-of-life expenses and leaves beneficiaries in financial trouble upon the death of its policy owner. 

Your individual life insurance policy should reflect your income, personal preferences and investment risk tolerance – and your desire to leave an inheritance for your loved ones. According to the American Council of Life Insurers, Americans purchased $3 trillion in new life insurance policies last year, bringing the total policy value in the United States to more than $18 trillion. Here’s a brief overview of the most common types of life insurance. 

There are two categories of life insurance – term and cash value. You’ve heard – and may know very well – the many different terms used to label such policies. Such terms include “term life,” “whole life,” “variable life,” and “universal variable life,” among others. 

Term life insurance is most popular among people under 50 years old. Simply put, term life has no “cash value,” but has its primary benefit as paying your beneficiaries a lump sum upon your death. They are usually the least expensive of the life-insurance policies out there. For term insurance to be paid, the person’s death must occur within the time frame of the coverage policy, be it one, five or 10 years. If death does not occur during the time of the policy, it expires and a new one must be purchased. 

A whole life insurance policy (also called “permanent” insurance) is a cash-value policy (unlike term life), which equals the cost of the premium plus interest paid on the investment account set up by your agent. Through the life of the policy, holders can withdraw funds from its cash value; it’s a loan, of sorts. The downside is if you die before you repay the loan, your benefits are reduced. Some whole life policies can span a specified number of years – 10 or 20, for example – or when you reach a specified age (typically around retirement age). Most whole life policies cover one’s entire life. 

Variable life is another cash-value policy, and some of its characteristics are offering fixed premiums and more control on the policy-holder’s end about investment choices. Variable life policies are less aggressive than universal variable life (see below).

Universal variable life insurance policies are the most aggressive strategies for cash-value life insurance programs. Typically of interest to affluent buyers who can withstand high investment risk, universal variable life insurance policies have no guarantees beyond the original face-value of the policy. 

Talk to your agent today to determine which policy is right for you. As with most insurance products, life insurance takes care of you and your family when life doesn’t go as expected, or in the case of these policies, when the inevitable happens to us all. 

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