Life Insurance

Whole life insurance

A whole life policy provides a set amount of coverage for your entire life. As long as the premiums are paid, your beneficiary will receive the benefit amount upon your death. Whole life policies also build up "cash value" from part of the premium being invested. It’s possible to access that cash value as the funds grow.

The cash-value component of life insurance

Cash value is a crucial selling point for whole life insurance: It's an account within your policy that builds up over time, tax-deferred, defeled by a portion of your premiums and interest paid by the insurance company. In fact, the whole life contract is designed for you to take advantage of that money because when you die, your beneficiaries receive the death benefit, but not the cash value that’s accumulated.

Whole life policies build up cash value slowly at first, but then pick up the pace after several years, when your earnings start to grow faster than your "mortality cost” (the cost of insuring you). At some point, the cash value may eventually earn enough that it could be used to continue to pay for your premiums until you die. Your insurer should be able to provide you with a policy illustration to demonstrate the potential growth of your policy.

Term Life Insurance

Term life insurance, also known as pure life insurance, is life insurance that guarantees payment of a death benefit during a specified term. Once the term expires, the policyholder can either renew for another term, convert to permanent coverage, or allow the policy to terminate. Term life insurance policies provide a stated benefit upon the death of the insured, provided that the death occurs within a specific period.

BREAKING DOWN 'Term Life Insurance'

Term life policies have no value other than the guaranteed death benefit. There is no savings component as is found in a whole life insurance product. The policy's purpose is to give insurance to individuals against the loss of life. All premiums cover the cost of underwriting the insurance. As a result, term life premiums are typically lower than permanent life insurance premiums.

Characteristics of Term Life Insurance

The basis for term life premiums is on a person’s age, health, and life expectancy, which is set by the insurer. If the person should die within the specified policy term, the insurer will pay the face value of the policy. Should the policy expire before the policyholder's death, there is no payout. Policyholders may be able to renew a term policy at its expiration, but their premiums will be recalculated for their attained age.

Who Will Benefit from Term Life Insurance?

Term life insurance is attractive for young couples with children. Parents may obtain large amounts of coverage for reasonably low costs. Upon the death of a parent, the significant benefit can replace lost income. They are also well-suited for people who temporarily need specific amounts of life insurance. In these cases, the policyholder believes their survivors will no longer need extra financial protection, or they will have accumulated enough liquid assets to self-insure.

Universal life insurance

Universal life policies continue to be popular because many offer a guaranteed death benefit coupled with an investment feature, says LIMRA spokeswoman Catherine Theroux, the latter feature which has helped to drive product sales in the past few years.

Traditionally, the majority of universal life products were purchased by consumers older than 65 who paid higher face amounts for coverage, but that trend began to shift in 2008, when both the face amounts and ages of universal life policyholders dropped slightly, Theroux says. After the financial crisis, “older consumers gravitated to more traditional products like whole life, while younger consumers were attracted to the guarantees and potential growth of the products,” she adds.

Universal life is designed to be flexible life insurance. As long as you pay your premiums to keep the insurance part of the policy in force, you can vary the frequency and amount of your premium payments. As a result, you can vary your death benefit. For instance, you can decrease your coverage to coincide with your declining mortgage. If you want more insurance, you might need a medical exam, even if you had one when you originally bought the insurance. It depends on your age and the amount of coverage you're buying.

Cash value within the policy

You can also put excess money into your universal life policy. The amount is held in a cash-value accumulation fund. You'll usually get a minimum interest guarantee from the insurance company, while the actual performance of the fund is tied to insurance company investments. Because of this risk, your premiums can be lower than those of a whole life policy. You might be able to skip premium payments if there's enough in your fund to cover the premium bill.

Remember any gain in your accumulation fund may be taxed upon withdrawal. Your level of cash value can also influence either your premium payments or your death benefit. When you buy a universal life policy, if you choose a level death benefit, the insurance company uses your cash value to reduce the amount of risk it takes on your life. This allows the insurance company to reduce the mortality expenses of your policy and reduce your premium payments.

Short Term vs Long Term Health Insurance

To help you evaluate both ends of the spectrum, this article describes the benefits, length of coverage and purpose of both long term and short term insurance options.

When choosing between a long term and short term health insurance plan, it's important to ask yourself two general questions:

How long will you need your insurance?

For periods of less than one year, a short term plan may be ideal. Long term plans offer annually renewable coverage, so you can keep the same plan for an extended period of time, but tend to cost a bit more.

What would you like your insurance to cover?

If you have pre-existing conditions, plan on becoming pregnant, or would like a more comprehensive plan, a long term plan may be your best option. If you just need doctor visits and general coverage, the short term insurance section below will be of most interest to you.

Short Term Insurance

Often called travel insurance plans, short term policies are specifically designed to cover both medical and travel experiences for a period of one year or less. They allow you to choose your own policy maximum and deductible, permitting you to stay in control of your coverage and the price. What it is

What it does and doesn't offer

Since you can typically only have your coverage for one year, these plans will not cover for long term conditions like maternity, mental health and pre-existing conditions. However, they will provide coverage for new illnesses or injuries while on your trip, including doctor visits and hospitalizations. Travel benefits like trip interruption and lost luggage are also included, so be sure to check the policy wording for details.

Who it is for

Since domestic plans typically don't cover medical expenses overseas, these plans work well for both individuals and families traveling outside of their home country looking for general coverage. Frequent travelers also get great use of these plans, since travel associated benefits like lost luggage or trip interruption come standard.

These plans also work well for students on shorter study abroad programs who do not need to meet strict insurance requirements. In some cases, short term plans can be great options while waiting on long term coverage through an employer or a private company.

Long Term Health Insurance

Long term insurance plans (often called major medical insurance) are annually renewable and comprehensive options specifically designed for you to stay on the same plan for long periods of time. Since you will typically keep a major medical plans for many years, they are medically underwritten - meaning you will need to answer health questions to ensure you're qualified for coverage. Unlike travel plans, which allow you to choose your own policy maximum and deductible, long term insurance coverage is usually less flexible, but offers a higher policy maximum and additional benefits, like preventative care.

Long term international insurance plans work well for both individual expatriates and families needing coverage for at least one year. They also work well for international students, allowing them to keep the same insurance plan throughout their studies. Anyone with pre-existing conditions or planning to become pregnant would be interested in a long term plan as well, since newborns are generally added to a plan automatically and pre-existing conditions are covered automatically or after a waiting period.