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Term Life Insurance

Can you believe life insurance is an asset or a liability? I'll discuss life insurance which I think is one of the best ways to protect your family.  A lot of people select term insurance because it's the cheapest and provides the most coverage for a specified time period such as 5, 10, 15, 20 or 30 years. People live longer so term insurance may not always be the best investment for everyone. If a person chooses the 30 year duration option they have the longest period of coverage but that would not be the best for a person in their 20's because when a 25 year old chooses the 30 year term policy then at age 55 the term would finish. After the man who is 55 years old and remains in great health but still needs life insurance the price of insurance for a 55 year old may get extremely expensive. If you're a disciplined investor this may do the job for you but can it be the perfect way to pass assets to your heirs tax free? If a person dies during the 30 year duration then the beneficiaries would find the face amount tax free. If your investments aside from life insurance have been passed to beneficiaries, in most cases, the investments won't pass tax free to the beneficiaries. Term insurance is considered temporary insurance and may be beneficial when a person is starting out life. Many term policies have a conversion into a permanent policy when the insured feels the need in the Not Too Distant Future.

Whole Life Insurance

The next type of policy is whole life insurance. As the policy says it's beneficial for your whole life usually until age 100. This type of policy has been phased out of several life insurance firms. The whole life insurance policy is called permanent life insurance as as long as the premiums are paid the insured will have life insurance until age 100. When the whole life policy accumulates over time it builds cash value which may be borrowed from the owner. The whole life policy may have substantial cash value after a period of 15 to 20 years and many investors have taken notice of this. After a time period, (20 years generally ), the life whole insurance policy can become paid up so you now have insurance and do not need to pay anymore and the cash value continues to build. This is a exceptional part of the whole life policy which other types of insurance cannot be made to perform. Life insurance shouldn't be sold due to the cash value accumulation but in periods of extreme monetary needs you do not need to borrow from a third party because you can borrow from your life insurance policy in the event of a crisis.

Universal Life Insurance

From the late 80's and 90's insurance companies sold goods called universal life insurance policies that were assumed to give life insurance for your whole life. The reality is that these types of insurance policies were poorly designed and many lapsed because interest rates lowered the policies didn't work well and clients were forced to send additional premiums or the policy lapsed. The universal life policies were a hybrid of term insurance and whole life insurance policies. Some of those policies were tied into the stock exchange and were called variable universal life insurance policies. My thoughts are changeable policies must only be bought by investors who have a high risk tolerance. After the stock exchange goes down, the policy owner could lose large and be forced to send in additional premiums to cover the losses along with your policy would lapse or terminate. The design of this universal life policy has had a major change for the better from the current years. Universal life policies are permanent policy which range in ages as high as age 120. Many life insurance companies currently sell mostly duration and universal life policies. Universal life policies finally have a goal premium that has a warranty as long as the premiums are paid the policy won't lapse. In a down market you usually don't have any profit but you don't have any losses to the policy either. If the market is up you may have a profit but it's constrained. In case the index market requires a 30% loss then you've got what we call the floor that's 0 so you've got zero loss but there is not any gain. Some insurers will still give as much as 3 percent profit added to you policy even in a down market. If the market goes up 30% then you're able to share in the profit but you're capped so you may only get 6 percent of the gain and this will depend on the cap rate and the participation rate. The cap rate helps the insurer as they are taking a risk that when the market goes down the insured won't endure and when the market goes up the insured may share in a percentage of the gains. Indexed universal life policies also have cash values that could be borrowed. The best way to look at the difference in cash values is to have your insurance agent show you illustrations so you can see what fits you budget. The indicator universal life policy includes a design that's beneficial to the consumer and the insurer and also may be a viable instrument on your total investments.

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