Life Insurance Basics, Part 2

By |2020-09-07T02:40:25+00:00September 11th, 2020|Categories: Blog and News, NHIA Blog|Tags: , |

Welcome back to our discussion about life insurance, where we finish outlining the different types of life insurance as well as other basics.

Variable Life Insurance

Variable insurance is a type of permanent life insurance that has an investment aspect. This type of policy has a cash value aspect that is invested in sub-accounts. Those sub-accounts act like a mutual fund. A mutual fund is a pool of money that the manager invests in stocks, bonds, and money markets. This type of policy is the only time that has this type of investment opportunity. The cash value will fluctuate based on how the investment sub-accounts grow or drop.

Variable Universal Life Insurance

Variable universal life insurance is a combination of 2 types of permanent life insurance. It has the flexibility of the universal life insurance policy, but the investment opportunities of the variable life insurance. When you separate the savings or investment part and the death benefit parts of this life insurance type, the risk falls on the insurance policyholder. The policyholder might have to pay higher monthly premiums to cover the cost of the insurance and rebuild the cash value.

Survivorship Life Insurance

This type of life insurance is a policy that covers two individuals. This policy only pays out after both people have passed. So the second policyholder doesn’t receive any money when the first policyholder dies. These types of policies are much easier to qualify for than others. That is because the life insurance companies are less worried about the health statuses of the policyholders.

Life Insurance Payouts

Other than the types of life insurance, one of the most common misunderstood life insurance basics is the payout. Life insurance companies pay the policy out to beneficiaries when a policyholder dies. The beneficiary will need to file a claim to the insurance company and then submit a copy of the death certificate. If there are multiple beneficiaries, the plan will lay out how the payouts will work. There are 6 main life insurance payout options:

  • Lump-Sum– This is the simplest form of a payout. It would be a single deposit from the insurance company
  • Installment Payments– This is where the life insurance policy will pay out a percentage over a number of years, such as 20% over a five-years. The beneficiary usually earns interest on the unpaid amount while the insurance company holds it.
  • Straight Life Income– This is when the insurance company will pay out the policy to the beneficiary over the rest of their life. No matter how long the beneficiary lives, the amount will be paid out on a monthly, quarterly, or annual basis.
  • Life Income with Period Certain– If the beneficiary dies, this payout option ensures that for a period of time a payment will be made, such as for 20 years after the death of the policyholder.
  • Joint Life with Survivorship– This payout option is based on the lives of 2 people and will continue paying as long as one of them is alive. A period certain payout can be added to this payout option.
  • Interest Only– This option lets the insurance company keep the insurance amount and the beneficiary receives the interest generated from the principal amount of the policy.

By The Numbers

  • 54% of American adults have life insurance
  • Most financial advisors would say to have 10-15x your annual income in life insurance
  • 40% of those insured wish they would have bought their policies at a younger age
  • Women typically pay 1/3 for life insurance versus men.

Life Insurance Basics: Where To Start

By |2020-09-07T02:28:14+00:00September 7th, 2020|Categories: Blog and News, NHIA Blog|Tags: |

Life insurance is an important companion to health insurance. It is a contract between a policyholder and an insurance company that guarantees a named beneficiary will receive a death benefit if the policyholder dies. Life insurance is based on the need of the policyholder. When looking at plans, you need to decide what kind you need, there are quite a few different types.

What To Consider

The first thing to consider when looking for life insurance is how long you’re wanting coverage. Term insurance plans are set up to only last a certain amount of years, whereas permanent insurance is set up to last until a policyholder passes away. Next, you should consider how much life insurance you want. That will determine what your monthly premium payment is. You should consider if at any time you’ll want to borrow from it. Certain types of insurance plans have a cash value you can take a loan from. A beneficiary is someone who will receive the money when a policyholder dies. That is something to consider when looking for policies also.

Types of Insurance

The main types of life insurance are term and permanent. Term insurance plans can be bought in many different year spans. There are quite a few such as yearly renewable, 5-year renewable term, 10-year, or 20-year. There is even a 30-year term insurance plan. Permanent insurance has five main types. Those types are as follows:

  • Whole
  • Universal
  • Variable
  • Variable Universal
  • Survivorship

Term Insurance

Term Life insurance is a type of policy that only covers a specified amount of time, usually 20-30 years. These plans are much less expensive than other types of plans. That is because there is no cash value until the policyholder passes away. If a policyholder outlives their policy, they can renew a policy for longer if they want. Term insurance is most affordable when you buy at a younger age. The younger you buy insurance the less risk you pose for insurance companies.

Whole Life Insurance

Whole life insurance is permanent, which means it will cover the policyholder for the duration of their life. A policyholder must make the payments on time for the policy to stay active. Along with paying out a death benefit, whole life insurance policies carry a savings component that will accumulate cash value over time. The savings component can be invested or the policyholder can borrow against it whenever they want. This can serve as a source of equity.

Universal Insurance

Universal life insurance is permanent with a savings element, but low premiums like term insurance. Most of these insurance policies have flexible premium options. Some require a single premium (single lump-sum) or fixed premiums (scheduled). These policies usually have the minimum premium payments required to keep the policy active. They can change while active. Policyholders can change their premiums and death benefits. Policyholders can remit premiums that are more than the cost of insurance. The excess premium is added to the cash value and accumulates interest. Policyholders can make withdrawals on the cash value, but they will have to pay taxes on that money.

Come Back

Come back next week to continue learning the different types of life insurance and what kind of benefits they have to offer.

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This Sliding Bar can be switched on or off in theme options, and can take any widget you throw at it or even fill it with your custom HTML Code. Its perfect for grabbing the attention of your viewers. Choose between 1, 2, 3 or 4 columns, set the background color, widget divider color, activate transparency, a top border or fully disable it on desktop and mobile.
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