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Types of Life Insurance...
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Reasons for Life Insurance...
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Permanent Life Insurance
Universal Life
This is a type of permanent life insurance based on cash value. The
premium above the cost of insurance is credited to the cash value account
held within the policy. The cash value is credited each month with interest
(determined by a declared interest rate or an index to stock or bond market
returns) and subject to minimum guarantee. In absence of premium being paid
the cash value may be able to make premium payments.
Universal life is sometimes described as a combination of whole life and annual
renewable term because the cost of insurance causes increases with the age of the
insured. This causes more of the premium to be credited to the cash value at the
beginning of the policy then at the end.
Some universal life products are designed to accumulate significant amounts of
cash value that can be accessed tax free through policy loans. Other types of
universal life products build up very little cash value but are designed to
provide the lowest possible premiums for permanent coverage through a no-lapse-guarantee
rider (NLG). The NLG rider may provide a lifetime of guaranteed coverage if the target
premium is paid regardless of the cash value in the policy.
Whole Life Insurance
Whole life insurance is designed to remains in force for the insured's whole
life and requires (in most cases) premiums to be paid every year into the policy.
There are several types of while life insurance policies, non-participating,
participating, indeterminate premium, economic limited pay, single premium,
and interest sensitive. Whole life is not as popular today as it once was due
to improvements in universal life product design; however, it still has benefits
in certain circumstances.
Variable Universal Life
A variable life insurance policy builds cash value based on the performance of a wide
variety of separate "sub-accounts", similar to mutual funds. Variable life insurance
is considered "permanent insurance" because as long as there is sufficient cash value
to pay the cost of insurance the policy will pay out the death benefit. This type of
policy may involve significant risk to cash value and the policy itself and should not
be used when the death benefit is the primary reason for the policy.
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