If it’s your first time shopping for life insurance, there’s a good chance you may not know which option is the right one for you. Finding the best match requires some homework before you make your choice. Here’s a breakdown of the various life insurance options to help you figure out which one fits best.
Term Life Insurance
Term life insurance is a policy that has level premiums that last for a set number of years (the term). Term life insurance includes a death benefit in the form of a lump sum of cash that’s paid out to a beneficiary by the life insurance company if you die during the term period. This lump sum that can be used for a variety of things, from burial expenses to mortgage and debt payments, to living expenses for your family, to donations. The death benefit is typically passed on the beneficiary generally tax-free. After the term expires the policy terminates. In order to continue coverage, you’ll have to convert your policy to permanent coverage before the term ends, renew it for another term, or shop for a new policy.
- It provides a generally tax-free death benefit for your loved ones.
- It’s the least expensive form of life insurance.
- Low-level premium expires after a set number of years or term.
Term life insurance is a great choice for most life insurance shoppers because it’s simple and cost-effective. If you’re on a tight budget, or you’re a young person age 20-30 who is just starting to build your financial future, term life insurance can be a good match for you.
Guaranteed Universal Life Insurance
Guaranteed universal life insurance is permanent coverage that provides the ability to guarantee a death benefit to any age up to a maximum age as stated in the policy, as long as the premiums are paid and the policy remains in force. Guaranteed universal life is not designed to generate cash value.
- Can provide a guaranteed death benefit for your whole life
- Death benefit passes to beneficiaries generally tax-free
Anyone with a need for death benefit coverage that who desires to buy a policy that can cover their entire life with less costly premiums compared to other permanent products.
Indexed Universal Life Insurance
Indexed Universal Life is insurance offers death benefit protection, and the opportunity to earn tax-deferred interest on the interest credits linked to the performance of one or more stock market indices chosen. This feature gives you the potential for cash value accumulation plus, it offers downside protection in a poorly performing market because you do not participate directly in the stock market and the credited interest rate is never less than the minimum interest rate or zero percent (floor). The upside is limited by either an index cap rate or an index participation rate. The index cap rate is the maximum interest rate used to calculate the index credit and the index participation rate is the portion of the index change used to calculate the index credit. The premium paid in the policy is not directly invested in any index or the stock market.
- Death Benefit is not generally subject to income taxes for the beneficiary.
- It offers the potential to grow cash value.
- The amount credited to the cash value grows tax-deferred without investing in the market.
- Flexible, adjustable premium and death benefit amounts as needs change.
- It can be an expensive product depending on your goals.
If interested in providing a death benefit for your beneficiaries with additional benefits, indexed universal life insurance policy might be attractive to you for its upside growth potential.
Remember that you don’t have to make a decision about life insurance alone. If you feel lost or overwhelmed by the choices or complexities of the products, discuss the pros, cons, and possibilities with a financial professional.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.
Neither the company, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.
The tax-deferred feature of an indexed universal life policy is not necessary for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing this policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.
Indexed Universal Life Insurance products are not an investment in the “market” or in the applicable index and are subject to all policy fees and charges normally associated with most universal life insurance.
Life insurance policies have terms under which the policy may be continued in force or discontinued. Current cost of insurance rates and interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. The Index Accounts are subject to caps and participation rates. In no case will the interest credited be less than 0 percent. Please refer to the customized illustration provided by your agent for additional detail. The policy’s death benefit is paid upon the death of the insured. The policy does not continue to accumulate cash value and excess interest after the insured’s death. For costs and complete details, write North American Company for Life and Health Insurance, One Sammons Plaza, Sioux Falls, SD, 57193.