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What types of life insurance are available?

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Life Insurance Plans for Individuals

Life insurance is a type of coverage that pays benefits upon a person’s death to designated beneficiaries. In some cases, there may be a maturity date, where the insured, if still living, can receive the proceeds. A small premium gives you immediate coverage and provides for a large death benefit payable upon the death of the insured to provide capital to provide an income for dependents.

Tax deferral is allowed with some types of life insurance to offer insurance in tandem with an investment component, which can allow increased funds to pass tax-free to heirs. This advanced estate planning tool is used by tax specialists who maximize the estate value while using life insurance. The investment after achieving growth can enhance retirement income.

Types of Life Insurance
Life insurance may be divided into two classes:

1. Term Life Insurance Term Life is less expensive, but most term periods are only temporary. Many people choose term life insurance (or term rider on a permanent plan)  when starting out with a young family, as they try to keep costs lower while covering many liabilities.

Term Life Insurance plans include:

  • The death benefit coverage continues for temporary terms that are set in periods such as 5, 10, or 20 years; or a lifetime level term to age 100.
  • Other periods can run to age 65, 75.
  • The premium remains constant for these terms.
  • The low cost of insurance for a certain level of death benefit is the essence of this plan, generally with less emphasis on a cash value, though some Term to age 100 plans have cash-out options, and some can be quickly paid up, while some also offer tax-deferral options.
  • You can buy more term coverage for less premium, which does increase upon each term period renewal (for example a five-year term rises in cost in the sixth and eleventh year and so on).
  • Term insurance usually can generally be converted to Permanent Life Insurance coverage without medical underwriting, but check with your advisor about renewal and conversion options when you plan to buy a policy.

2. Permanent Life insurance continues to the time of the decease of the insured or alternatively pays one a level or an increasing lump sum at a certain age of maturity (usually age 100), or offers cash value or tax-deferral or premium pre-payment incentives. Where there are cash values associated with a Permanent plan, the amount of risk is reduced for the insurer. This often allows the cost of the insurance to be lowered as the increasing cash funds accumulating in the plan, increasingly reduce by replacing, the level of insurance needed.

Permanent Life Insurance plans include:

  • Whole Life, offering a level premium and a cash value table in the policy guaranteed by the insurer;
  • Limited Premium Payment, where the policy can be paid up fully in a specific period of time (such as over 10 or 20 years; or paid up at age 65).
  • Endowment Life where the cash value grows to a level equal to the insurance coverage, and

Note: Life insurance premiums vary according to the policy type. In some cases, paying a little more premium offers enhanced benefits. Tax-deferral strategies may change due to legislation.

 

 


 

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