Term Life Insurance
Term life insurance is protection that is designed to meet temporary insurance
needs. For instance, you may decide that you want coverage until your kids
graduate from college; or, until a particular debt like your mortgage is paid
off. Term insurance covers you for a specific period of time (the “term”),
generally from one to thirty years, and pays a death
benefit only if you die during the term.
Term insurance is the most basic type of life insurance and typically the least
expensive. This makes it an attractive option for many young couples and
individuals. You can buy higher amounts of coverage when the need for protection
is usually at its greatest.
As with all types of life insurance the death benefit is paid to your
beneficiaries completely income tax free. If you stop paying premiums and allow
the policy to lapse, there is no cash value paid out to you, the coverage simply
Universal Life Insurance
Universal life insurance is a more permanent type of insurance offering for
people looking for long term insurance coverage. Universal Life, also called UL,
offers a great deal of flexibility over term insurance.
You can pay premiums at any time, in virtually any amount, subject to certain
minimums and maximums. You can also pay premiums in advance and even skip
payments in certain circumstances. Plus, UL can better meet your changing needs
over time because you can increase or reduce the death benefit.
Many of today’s universal life policies also offer guaranteed lifetime
protection to help you protect your loved ones against financial hardship if you
die. As long as your premiums are paid, your policy will remain in force no
matter how long you live. Some life insurance policies without this feature only
pay a death benefit until a certain age, like age 100.
Universal life insurance also has a “savings” feature, called cash value. Each
payment you make to the contract pays for your insurance coverage and then the
excess is invested to build cash value that you can use in the future. The
insurance company invests this cash value and credits interest to this account.
Most UL contracts also offer a guaranteed minimum interest rate so you always
know that your money will earn a minimum amount. The cash value in your account
also grows income tax-deferred allowing it to accumulate faster.
If you need to access your cash value, you have a couple of options. You can
“borrow” your own cash value by taking a policy loans. These loans are generally
not taxed as long as your policy stays in force. You can even withdraw money
from this cash value without taxes as long as the total amount of money you
withdraw is not greater than the total premiums you have paid. Be aware that any
loans and withdrawals may generate an income tax liability, reduce available
cash value, reduce the death benefit or cause the policy to lapse.
Universal Life Offers:
Flexible premium payments
Guaranteed death benefit protection on some policies
Potential “savings” feature from which loans and/or withdrawals can be taken
Tax-advantaged cash value accumulation potential Income tax-free death benefit
Variable Universal Life
Variable universal life insurance (VUL) is another type of permanent life
insurance coverage with the potential to build cash value.
If you’re like many people, your life insurance coverage needs may vary over
time. VUL also allows you, within policy guidelines, to determine the amount and
frequency of your premium payments and to adjust the death benefit of your
policy up or down, as long as you pay the minimum required premium to keep the
Beyond the death benefit, a VUL policy has a cash value feature that may
accumulate from premiums you pay in excess of the policy charges (like cost of
insurance or expense charges). This cash value may earn interest or grow in
value, and these earnings are allowed to grow tax-deferred. The cash value may
also decrease in value, depending on the performance of the variable investment
options (subaccounts) you choose.
When you purchase a VUL policy, you and your financial professional choose which
subaccounts are suitable for you and how you want your cash value invested.
Most VUL policies offer a wide range of investment options, from conservative to
aggressive, and even include a fixed account. Your financial professional will
work with you to select a combination of investment options that suit your risk
tolerance and financial goals.
Variable Universal Life offers:
Flexible premium payments
Access to sub accounts offering the potential for greater cash accumulation but
also the potential for greater market risk.
Versatility in death benefit protection options
Tax-deferred cash value accumulation potential
Before investing, carefully consider the investment objectives, risks, and
charges and expenses of the variable universal life insurance policy and each
underlying variable investment option. This and other information is contained
in the prospectuses for the variable universal life insurance policy and the
underlying variable investment options. Obtain these prospectuses from your
agent/registered representative and read them carefully before investing.