As part of our estate planning service, we assist our clients with the search for life insurance products which provide an appropriate fit for their families. When it comes to life insurance, it is not surprising that many clients have some confusion regarding the appropriate option for their needs. Seemingly, the choices proliferate with each change in the interest rate. As brokers, the professionals at Clay Thomas, PC assist our clients in assessing the option which best fits their needs by utilizing the best products of 16 insurance companies. This assures our clients the right fit and face it, life insurance is not about the insured but about who is left behind.

To assist you, we would like to reduce some of the confusion regarding life insurance types with the following explanation of the coverage available to our clients:

Term insurance is the least expensive coverage over a limited number of years. This is especially when the client is young and it is particularly appropriate when the client is a young parent who wants substantial insurance at low cost. Term insurance pays a preset cash amount if one dies while the policy is in force. However, if one dies after the term of the policy, no benefit is paid. It has no equity or residual value.

Typically, some term policies may be capable of being converted to permanent insurance. However, a new assessment of the physical condition of the applicant is required to determine insurability. That means that the older one becomes, the greater the risk for the insurance carrier and the greater the cost to the applicant.

Permanent Insurance

Permanent insurance is more expensive than term insurance because it cannot be cancelled as long as the premiums are paid and also due to the fact these policies are investment vehicles. These insurance policy types include Whole Life, Universal Life, Variable Life, Variable Universal Life, Single Premium Life, and Survivorship Life.

Whole Life Insurance

Whole life provides coverage for the entire life of the insured in exchange for fixed, uniform payments. Premiums may be paid through the insured's life or a portion thereof. Also , premiums may be paid in lump sums when the policy is taken out. With whole life insurance, part of the premium is applied to the insurance portion of the policy, part is applied to administrative expenses, and the remainder of the premium is applied to the investment portion of the policy. The investment portion usually consists of stocks, bonds, and mutual funds.

Universal Life Insurance

The potential advantage of Universal Life policies is in its flexibility and the potential for greater cash growth if the interest rates offered outperform the insurer's general account. It may also be more flexible in the death benefit and the premium payment.

Variable Life Insurance

Variable life insurance is also a form of whole life insurance. The major difference is in the investment portion of the policy. In variable life, the policyholder is able to choose how to invest the funds in the investment portion and may select from an array of investments such as common stocks, bonds, and mutual funds as long as they are within the insurance companies portfolio. Variable life is generally more expensive than other forms of life insurance. Death benefits may fluctuate depending on investment performance however, there is usually a minimum level for benefits so that they will not drop below a certain level.

Variable Universal Life Insurance

Variable universal life is a type of whole life policy that combines premium payment and coverage flexibility of universal life insurance with the investment opportunity and risk of variable life insurance.

Single Premium Life Insurance

In single premium life insurance policies, all premiums due for the duration of the policy are paid up-front. One reason for the purchase of such policies is that it enables the purchaser the opportunity to give the fully paid for policy to new owners. This can result in large estate tax savings. In addition, the gift of a policy that is paid up eliminates the risk that the new owners will fail to make payments and cause a policy cancellation.

Survivorship Life Insurance

Survivorship life insurance is a relatively new type of policy and is also called second to die or joint life insurance. Survivorship life insurance provides a single policy insuring two lives. When the first spouse dies, the policy remains in force with no payment of the policy occurring. Premiums must continue to be made until the second spouse dies. Upon the second death, the policy benefit is paid to the beneficiaries.