Insurance After You're Gone
As with Wills and Trusts, there are many variations when it comes to insurance. The following are types of life insurance:
Whole Life: Sometimes called cash-value life insurance. You pay a monthly premium on a policy that will, upon your death, pay a predetermined fixed amount of money to your beneficiaries. A portion of the fixed premium is invested and another portion placed into an account that is accessible to the policy owner. It can be borrowed against as a loan, or the cash can be taken as the proceeds of the policy instead of the death benefit payout.
Universal Life: A type of whole life policy that guarantees a minimum return but the value of the policy can go up or down. If the policy makes more money, the return might be high enough to cover your premium payments.
Joint first-to-die or second-to-die: This is a policy held by two people, and the beneficiary is paid after the first person or second person dies. You decide the payout when you set the terms of the policy.
Term Life Insurance: This policy carries an annual premium and pays a specified death benefit to the beneficiary. However, it does not have a cash value so you cannot borrow money from it. The only payment is made to the beneficiary. The premium is based on the amount of insurance you purchase and how old you are. If you stop paying premiums, the death benefit is not paid.
Annual renewable: A policy that has an annual premium and can be renewed from year to year.
Decreasing: Premiums remain the same but benefit decreases over time.
Level: Coverage is guaranteed for a specific period of time or term at a specific premium.
Group: Employers frequently purchase a term life policy for each employee as an added benefit. Employees get a low rate and there is no income tax on the premiums for the first $50,000 of coverage.