Class 26

What are the types of life insurance?

Term and Cash Value (Whole life, Variable life, and Universal life)

How do the coverage provisions change with the different types of life insurance?

They do not change. The different types regard the amount you buy

What is special about term life insurance?

The period of protection is temporary. It is much cheaper than cash value. Premiums increase at the end of each term, assuming you renew. If you fail to renew, you have to go through the underwriting process again

What is whole life insurance?

Coverage is only available for your “whole life.” It never expires

Premiums stay the same for the entirety of policy term

Part of your premium pays for insurance protection, and part of it set aside in cash account

Not subject to investment risk, the cash-value can only increase (unless insurer goes bankrupt)

What are the 5 options with whole life?

• Leave it alone and death benefit is unchanged

• Policy loan. You pay the loan back in full. If you die before you pay it back, the death benefit is reduced by the amount of the loan

• Withdraw some of the cash value. Not a loan. You reduce the face value of the policy by the amount of the loan

• Use the csh value to pay future policy premiums.

• Surrender the policy and take all of the cash values (less surrender charges). At this point the policy is cancelled.

What is the difference between whole life and variable life?

• Lifetime coverage with level premiums (like whole life)

• Just like whole life, part of the premiums is for insurance protection, and the other part can accumulate cash for your use (college fund, emergency needs, etc.)

• Unlike whole life, you have the option to decide how the cash value is invested

  • You are offered a set interest rate, like a CD or a savings account

• Subject to investment risk (can go up or down)

• Variable life is the same as whole, but lets you take on the investment risk. It was designed to combat the negative publicity with whole life insurance

What was our professor’s recommendation on life insurance?

Buy term and invest the rest

What is universal life?

Very similar to Variable Life, but you have many more investment options

What is the tax advantage of whole life?

Its good, but there are much better investment vehicles (401k)