Term Insurance

Term assurance provides life insurance coverage for a specified term of years in exchange for a specified premium. The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else.

There are three key factors to be considered in term insurance:

1. Face amount (protection or death benefit),
2. Premium to be paid (cost to the insured), and
3. Length of coverage (term).

Various insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. Common types of term insurance include Level, Annual Renewable and Mortgage insurance.

A Level Term policy has the premium fixed for a period of time longer than a year. These terms are commonly 5, 10, 15, 20, 25, 30 and even 35 years. Level term is often used for long term planning and asset management because premiums remain consistent year to year and can be budgeted long term. At the end of the term, some policies contain a renewal or conversion option. Guaranteed Renewal, the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Some companies however do not guarantee renewal, and require proof of insurability to mitigate their risk and decline renewing higher risk clients (for instance those that may be terminal). Renewal that requires proof of insurability often includes a conversion options that allows the insured to convert the term program to a permanent one that the insurance company makes available. This can force clients into a more expensive permanent program because of anti selection if they need to continue coverage. Renewal and conversion options can be very important when selecting a program.

Annual renewable term is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time.

Another common type of term insurance is mortgage insurance, which is usually a level premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner’s residence so the mortgage will be paid if the insured dies.
A policy holder insures his life for a specified term. If he dies before that specified term is up, with the exception of suicide*, his estate or named beneficiary receives a payout. If he does not die before the term is up, he receives nothing.

*Suicide used to be excluded from ALL insurance policies, however, after a number of court judgments against the industry, payouts sometimes occur on death by suicide. Generally, if an insured person commits suicide within the first two policy years, the insurer will return the premiums paid. However, a death benefit will usually be paid if the suicide occurs after the two year period.

Call us now at 702-547-1900 or fill out our contact form for a complimentary consultation on Term Life Insurance.

Whole Life Insurance

Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life insurance are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums. The mortality and expense charges which are part of all life policies will not reduce the cash value shown in the policy.

The primary disadvantages of whole life insurance are premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives. Also, the cash values are generally kept by the insurance company at the time of death because the beneficiaries receive the death benefit. Riders are available that can allow the insured to increase the death benefit by paying additional premium. The death benefit can also be increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time. Premiums are higher than term insurance in the short-term, but cumulative premiums are roughly equal if policies are kept in force until average life expectancy.

The cash value in your policy is available to you, if needed, and can be accessed at any time through policy "loans" which are received "income-tax free". Since these loans decrease the death benefit if not paid back, payback is optional and the stated interest rate in the policy would apply to these loans. Cash values support the death benefit so only the death benefit is paid out.

Dividends can be utilized in many ways. First, if Paid up additions is elected, dividend cash values will purchase additional death benefit which will increase the death benefit of the policy to the named beneficiary. Another alternative is to opt in for 'reduced premiums' on some policies. This reduces the owed premiums by the un-guaranteed dividends amount. A third option allows the owner to take the dividends as they are paid out. Dividend options can vary by company and we will be glad to detail your options for your own policy.

Call us now at 702-547-1900 or fill out our contact form for a complimentary consultation on Whole Life Insurance.

Universal Life Insurance

Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. There are several types of universal life insurance policies which include "interest sensitive" (also known as "traditional fixed universal life insurance"), variable universal life insurance, and equity indexed universal life insurance.

A universal life insurance policy includes a cash account but the cash decreases over time. Premiums increase the cash account, but, the cost of interest increases each year so the cash deteriorates over time. Interest is paid within the policy (credited) on the account at a rate specified by the company, but then mortality charges and administrative costs are then charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account less applicable surrender charges, if any. Universal Life does not work in a recession or low interest rate environment.

With all life insurance, there are basically two functions that make it work. There's a mortality function and a cash function. The mortality function would be the classical notion of pooling risk where the premiums paid by everybody else would cover the death benefit for the one or two who will die for a given period of time. The cash function inherent in all life insurance says that if a person is to reach age 95 to 100 (the age varies depending on state and company), then the policy matures and endows the face value of the policy. Actuarially, it is reasoned that out of a group of 1000 people, if even 10 of them live to age 95, then the mortality function alone will not be able to cover the cash function. So in order to cover the cash function, a minimum rate of investment return on the premiums will be required in the event that a policy matures. Universal life insurance addresses the perceived disadvantages of whole life. Premiums are flexible.

Depending on how interest is credited, the internal rate of return can be higher because it moves with prevailing interest rates (interest-sensitive) or the financial markets (Equity Indexed Universal Life and Variable Universal Life). Mortality costs and administrative charges are known. And cash value may be considered more easily attainable because the owner can discontinue premiums if the cash value allows it. And universal life has a more flexible death benefit because the owner can select one of two death benefit options, Option A and Option B. Option A pays the face amount at death as it's designed to have the cash value equal the death benefit at maturity (usually at age 95 or 100). With each premium payment, the policy owner is reducing the cost of insurance until the cash value reaches the face amount upon maturity. But, it does not perform like a whole life policy when each year the costs increase and never stop. In whole life, the costs are complete within the first few years of the policy. Option B pays the face amount plus the cash value, as it's designed to increase the net death benefit as cash values accumulate. Option B offers the benefit of an increasing death benefit every year that the policy stays in force. The drawback to option B is that because the cash value is accumulated "on top of" the death benefit, the cost of insurance never decreases as premium payments are made. Thus, as the insured gets older, the policy owner is faced with an ever increasing cost of insurance (it costs more money to provide the same initial face amount of insurance as the insured gets older).

Call us now at 702-547-1900 or fill out our contact form for a complimentary consultation on Universal Life Insurance.