Life Insurance - What are the principal types of life insurance?
Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance sold to individuals.
Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.
There are two basic types of term life insurance policies?level term and decreasing term.
Level term means that the death benefit stays the same throughout the duration of the policy.
Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy's term.
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Whole Life / Permanent Insurance
Whole life or permanent insurance pays a death benefit whenever you die?even if you live to 100! There are three major types of whole life or permanent life insurance?traditional whole life, universal life, and variable universal life, and there are variations within each type.
In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the company keeps the premium level by charging a premium that, in the early years, is higher than what's needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.
By law, when these "overpayments" reach a certain amount, they must be available to the policyowner as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.
In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product: universal life insurance and variable universal life insurance.
For more about the different types of whole life/permanent insurance, call the agency at (773) 742-6626 or e-mail us.
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Banks Apply this Method - Why not you?
The author of "New Life Life Insurance" Barry Dyke wrote: "The largest banks in the country continuously invest between 10 and 30 percent of their reserves - hundreds of millions of dollars - in life insurance and annuities, as per the FDIC. You also have reason to do it.”
If you are a business owner: do you want to attract valuable employees; do you want to offer a benefit to whomever you want, not the one who determined by law? Or do you want to enrich the benefit package with minimum financial impact on your business, and with minimal tax ward and control and minimal costs of administration?
Do you want to offer a special Benefit to yourself as the key employee in your business? If your answer is "yes" to one or more of the above questions, so-called "key worker" or "CEO" plans are options that you should explore. To keep the workers who are important to your company, or augment their own retirement income, is very important for your success.
So-called qualifying plans as the most popular 401 (k) are a common Benefit, but they are associated with many rules and regulations that limit the amount of annual contributions. The employer is obliged to offer the same conditions to all, and this penalizes those that are valuable to his business, including himself as a key person.
"Key worker" or "Executive Director" plans that use life insurance are the simplest way to provide a benefit. They are not complicated for the employee or the employer because "key worker" or "CEO" plans are personal property on a permanent life insurance paid by businesses and tax exempt for the business. These plans do not need approval by tax regulations, they are not governed by ERISA and have very simple administration.
"Key Worker" or "CEO" plans are a great way to reward the one who deserves it, and why not yourself as a worker in the company?
As a business owner, why would we choose "Key Worker" or "CEO" bonus plan?
What about the control of the policy?
If the employer is concerned about spending early in the policy life, or redemption, it is possible to place restrictions. Of course, money will be available in case of death of the insured. This is the so-called "golden handcuffs" control.
I assume that you already have one question: Who pays Uncle Sam, and when do they pay? The answer is at the time of bonus paid to the employee. Taxes are withheld first and then the premiums of the policy are satisfied.
In the attached tables, see an example of such a policy: the left columns show the contributions which the employer would do for 10 years, and at the bottom on the right side you see withdrawals after retirement. They are under the heading “Non-guaranteed”. They are based on the financial performance of the company and in particular of the annual dividend. It is therefore important that the selected insurance company be mutual.
She takes care of the dividend and it is its most important milestone for these types of insurance companies. Therefore it is also important which is the company and how stable it is. Dividend varies, and it is almost impossible to become 0%.
The example below is with 6.4% current dividend from one of the top three life insurance companies in the country.
The amount shown above as 178.24 dollars is for waiver of premiums in case of full disability of insured. It means that the insurance company will bear the payments if full disability happened. Similar guarantee for your money invested in the financial market as private retirement plan does not exist. These plans have their good side when saving your money from current taxation, but when received one day they will be taxed.
Any form of monetary growth vehicle has its positive and its negative aspects. It is important to know them and apply according to your individual situation.
Such articles should not be taken as specific advice to someone. They have a general informative nature.
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