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LIFE INSURANCE

Term, Whole and Universal life insurance

Truthfully, most people outlive their term life policies. And that’s a good thing, because most companies offer only up to 30-year terms. Since many people buy term life insurance before reaching middle age, they’re likely to outlive the term of their policy.

There are two common types of term life: level and non-level.

  • Level term life insurance

    May be best for people who want the same costs and benefits over time

    With a level term policy, you get the same coverage for the same price throughout the length of your term. Your premiums will never increase, and your death benefits will never decrease.

  • Non-level term life insurance

    May be best for mortgage protection, decreasing coverage needs

    With non-level term, your life insurance policy changes steadily over time in one of two ways: either your premiums will go up, or your payout will decrease over time. One example? Mortgage insurance. This type of policy pays the lender the remainder of your mortgage, which decreases as you make your monthly loan payments.

    Because the value of a non-level policy decreases over time, you might expect this type of life insurance to cost less. Unfortunately, the price usually remains about the same, so most people opt for level term.

  • Whole life insurance

    May be best for people who want to lock in a rate for life, then leave an inheritance

    Whole life has an appropriate name: it covers you for your whole life, provided you continue paying your premiums. Meanwhile, your cash value collects in a low-interest account.

    If you’re looking for life insurance plus a savings account, this type of life insurance could help you check both boxes. Your cash value will slowly grow, and your beneficiaries will receive a payout whether you live to 50 or 150. If that sounds good, check out the top 10 whole life insurance companies.

    If you’re looking for life insurance plus an investment vehicle, however, whole life probably won’t make the cut. You could invest in almost anything else and earn a higher rate of return. So let’s look at variable life insurance instead.

  • Universal life insurance

    May be best for people who want to change their policy on the fly

    Like variable and whole life, universal life is permanent life insurance, but it differs in two main ways.

    First, you can decide how much of your premium goes toward funding your death benefit and how much goes into your cash value account. You can even choose to pay a larger or smaller premium (within limits). Keep in mind, however, the less you pay toward your death benefit, the lower the payout your beneficiaries might receive.

    Another important difference between a universal life insurance policy and other forms of life insurance? Universal policies have a maturity (or expiration) date, usually when you reach age 95, 100, or 121. When your policy matures, you receive a lump sum, typically equivalent to your cash amount, and your life insurance coverage ends.

  • Indexed universal life

    May be best for someone interested in flexibility and possibly benefiting from market gains

    Indexed universal life insurance is a type of universal life insurance that allows the policy owner to choose to invest the policy’s cash value. The insurance company offers one or more investment options designed to match the growth rate of a well-known index, such as the S&P 500 or NASDAQ 100. That means you can grow your cash value faster without knowing a lot about the stock market.

Type of Annuities

There are two basic annuities: deferred and immediate.

With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement.

If you opt for an immediate annuity you begin to receive payments soon after you make your initial investment. For example, you might consider purchasing an immediate annuity as you approach retirement age.

The deferred annuity accumulates money while the immediate annuity pays out. Deferred annuities can also be converted into immediate annuities when the owner wants to start collecting payments.

Within these two categories, annuities can also be either fixed or variable depending on whether the payout is a fixed sum, tied to the performance of the overall market or group of investments, or a combination of the two.

The biggest advantages annuities offer is that they allow you to sock away a larger amount of cash and defer paying taxes.

Unlike other tax-deferred retirement accounts such as 401(k)s and IRAs, there is no annual contribution limit for an annuity. That allows you to put away more money for retirement, and is particularly useful for those that are closest to retirement age and need to catch up.

All the money you invest compounds year after year without any tax bill from Uncle Sam. That ability to keep every dollar invested working for you can be a big advantage over taxable investments.

When you cash out, you can choose to take a lump-sum payment from your annuity, but many retirees prefer to set up guaranteed payments for a specific length of time or the rest of your life, providing a steady stream of income.

The annuity serves as a complement to other retirement income sources, such as Social Security and pension plans.

Fixed Annuity

The money that is invested in the annuity is guaranteed to earn a fixed rate of return throughout the accumulation phase of the annuity (when money is being put into it). During the annuitization phase (when money is being paid out), the balance invested, minus payouts, will continue to grow at this fixed rate.

Fixed Indexed Annuity

A Fixed Index Annuity is a tax-favored accumulation product issued by an insurance company. It shares features with fixed deferred interest rate annuities; however, with an index annuity, the annual growth is bench-marked to a stock market index (e.g., Nasdaq, NYSE, S&P500) rather than an interest rate.

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