Basic protection for you and your family should be the foundation of your financial blueprint. Your family will never reach financial success if your assets are improperly protected.
Life insurance has many uses; however its primary purpose is to provide financially for a family in the event of death, via a guaranteed death benefit.
When you’re young and starting a family, a term life insurance policy is a low-cost way to build a temporary financial safety net. With a term policy, you’re basically “renting” the coverage; when that policy expires there is no payout and it loses all its value.
As the name suggests, term life insurance guarantees a benefit to the insured’s beneficiaries if the insured person dies during a specified term. Because it offers coverage for a restricted time and provides only a death benefit, term life is usually the least costly life insurance available.
Although term insurance is a cost-effective way to get immediate coverage, it’s important to know that the cheapest term policy isn’t always the best option.
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Young Professionals, who are focused on establishing their career and building a family, may not be ready to consider a permanent life insurance policy and, at this time, just want the immediate coverage. Which is fine, as long as you help them prepare for a “term-conversion” down the road.
Although they are not the cheapest, many term policies include a stipulation that lets the owner convert some or all of their coverage into a permanent policy within a specified time frame. This will make things much easier for your client when they are ready to consider their permanent options.
While they could get a new policy, a term conversion is almost always easier. That’s because most companies allow the policy owner to convert their term policy to a permanent policy without undergoing another health examination. Their premiums will still be affected by their age, but they won’t be affected by any changes in their health.
Some permanent life insurance products include…
Similar to “Term for Life” product, a Guaranteed Universal Life (GUL) product is a permanent solution to your clients’ life insurance needs.
With a GUL product, the premiums stay the same regardless of how market indexes perform, as the plan’s interest rates are baked into the premiums when you sign up for the policy.
This type of life insurance has a “no-lapse” guarantee, meaning that as long as the premiums are paid, the owner will have coverage.
This also means, however, that the policy may not have any cash value at all. There’s nothing to support the death benefit if the owner stops paying the premiums, although as long as the owner keeps paying premiums the death benefit will never decrease or go away.
The main “selling-point” of a UL product is its flexibility when it comes to premium payments. When you make a payment to your universal life insurance plan, part of it goes into an investment account, and any interest accrued is credited to your account. The interest you earn grows on a tax-deferred basis, increasing your cash value.
You can adjust the death benefit when needed, increasing it (often subject to a medical exam) if your circumstances change, or lowering it to reduce premiums. Alternatively, you can use your cash value to pay premiums as long as there is enough money in that account.
Indexed Universal Life insurance is similar to UL products, the difference being the cash value accumulation in the policy is based on the performance of an index, such as the S&P 500.
This offers the potential to minimize the premium payments, as the cash value that builds up in the policy can be used towards the premiums.
This cash value can also be used to increase the death benefit over time, maximizing the amount going to the policyholders beneficiaries.