Ah, life...welcome to what is probably the most versatile and least understood type of insurance on the market. Think of a person or asset or investment you REALLY NEED to protect ex post yourself. There is a type of life insurance policy designed for the purpose. That's what makes life insurance so confusing.

So let's take all this apart & look at what you can use life insurance for:

  • Traditional Family protection - ensuring there's money to cover the mortgage, car payments, & college costs, not to mention daily living expenses
  • Estate planning - ensure your heirs have money on hand to pay any outstanding taxes, etc 
  • Pay estate taxes - after you & your spouse have both passed away 
  • Fund charitable trusts

  • Keyperson Life - cover the company in the event a key employee dies
  • Buy-Sell Funding - ensure a surviving owner has ready funds to buy out a deceased partner's heirs
  • Succession Planning - ensure your company has the financial wherewithal to continue operations if you pass away
  • Funding Executive Bonus 
Clearly, no one kind of policy can do all of the above.  That's why there are all sorts of policy types available:  term, whole life, universal life, variable universal life, life with a long term care rider... No wonder it's confusing!

So what's the difference? 

TERM - this is your basic, bare bones, 'just the facts, ma'am' kind of policy.  A term policy covers you for a specified number of years, e.g., 10, 20, or 30.  That's all it does.  If you die during the policy term, the policy pays the designated amount to your designated beneficiary.  If you die one day AFTER the policy term ends... nothing. 

WHOLE LIFE - this is the classic 'if it's year 5, your cash value is ...' kind of policy.  A whole life policy lasts for (surprise!) your whole life - or until you reach age 100, whichever comes first. UNlike a term plan, a Whole Life policy builds up cash value based on the insurance company's cash value accumulation schedule. Reach age 100 and the insurance company will hand you a check for the full policy amount. Other than that there is no end date to the policy term.

UNIVERSAL LIFE - like a whole life policy, universal life (UL) builds cash value and lasts for your entire life.  UNlike a whole life policy, though, cash value in a UL policy grows based on interest, similar to a bank savings account. The policy guarantees you a minimum interest rate; if the insurance company's investments do better than that you'll share in the higher return.  If their investments tank, you're protected by the minimum rate guarantee.  There's more to it than that, of course, but that's the basics.

VARIABLE UNIVERSAL LIFE - this is a form of UL that allows you to invest part of your cash value and/or premium in the stock &/or bond market.  


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