Types of Life Insurance

Life insurance comes in a variety of options to meet special needs and circumstances of the owner, the insured or the beneficiary.  Here is a summary:

Annual Renewable Term (ART)

This type of coverage is usually the cheapest to own initially, but can quickly become the most expensive as you get older.  This is because the cost of coverage increases each year as you get older.  ART can become unaffordable at older ages as it can become prohibitively expensive.  If you have life insurance at work through your employer, most likely it will be ART.  This coverage might be best if you have a very specific, short-term need only.

Multi-Year Guaranteed Level Term

This coverage is similar to ART, except that your premium is fixed for a specific number of years, typically 10, 20, or 30 years from the policy effective date.  Many guaranteed level term policies also have a conversion feature allowing the owner to convert to a permanent policy prior to the end of the term or a specific age.  Unfortunately, you need to ask your agent about permanent coverage pricing at older ages to see if this might be a good option.  Certain companies offer conversion to more competitively priced permanent coverage than others.  Should you choose not to convert at the end of the term, there is no residual value in the contract.  If your death benefit needs will mostly evaporate over this time frame, say for a mortgage balance, multi-year guaranteed term may be among the lowest cost options for that specific term period.

Guaranteed Universal Life (GUL)

GUL policies are essentially multi-year guaranteed term policies that guarantee against lapse until age 90, 95, 100, 121 or some other age as specified by the product.  There is very little cash accumulation value in these products, but the death benefit is guaranteed against lapse until the specified age.  If a permanent death benefit is the priority, GUL policies are among the lowest overall cost over a normal or longer life expectancy.  With many individuals living well into their upper 90’s today, it is our opinion to choose a GUL to at least age 100 or even 121 to be safe.

Universal Life / Indexed Universal Life

Universal life is permanent coverage that has cost of life insurance along with a separate cash accumulation value.  The insurance company will assign a “target” premium rate that is expected to provide enough premiums over your lifetime as not to lapse your coverage.  Universal Life contracts will usually have a declared rate of interest on your cash accumulation value whereas the Indexed Universal Life will credit interest based on the performance of a stock market index with 0% as the annual interest rate floor.  The current UL/IUL products are so creatively designed today that they are able to solve for a variety of family, business and legacy needs as well as tax-free income planning.  Tax-free income comes in the form of systematic, planned policy loan distributions that offsets the ultimate death benefit.

Whole Life

Whole life contracts usually lock-in both the premium rate and also the death benefit from the onset.  If you are looking for permanent coverage with a guaranteed death benefit and guaranteed premium rate, whole life may be the best choice.  Policies of $35,000 or less are sometimes called “final expense” whole life policies.  Some final expense policies have a graded death benefit whereas the full death benefit is not available until the 3rd policy year.  Graded policies such as this are generally used when medical underwriting is limited or waived or when the applicant has a more significant medical history.