Chapter 4 – Types of Insurance

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In the world of life insurance there are dozens of products. They have catchy names such as Genesis, Estatemaster, Exce Life, Estate Advantage, and Wealth Advantage. While these all sound riveting, they are all the same two types of insurance!

 

Ignore the fancy names. All you need to know are these two basic forms of life insurance and a few sub-categories:

 

  1. Temporary Insurance:
  • 10, 20, 30 year term

 

  1. Permanent Insurance
  • Whole Life
  • T100
  • Universal Life

 

Now that you know the basic forms, let’s look over how the two types of insurance work and how they differ.

 

1. Temporary Insurance

Term Insurance

Used to cover a set period of time that typically coincides with a defined need such as a mortgage, children’s education or outstanding debts. Common term policies can be 10, 20, or 30 years and have set premiums. When the term is up, the insurance can continue but at a predetermined higher rate. Term is great for covering temporary needs, it’s both easy to understand and inexpensive. To be clear though, Term is for temporary needs, and is not cost effective to cover your permanent needs.

 

2. Permanent Insurance

  • T100

This product is often the least expensive way to cover your permanent needs. It has a set payment schedule that never goes up and never goes down, unless you want more or less coverage. There is no flexibility. If you live past 100 years old you may not pay premiums anymore, and the policy will remain in force. T100’s beauty is in its simplicity.

 

  • Whole Life

This product is similar to T100 with some key differences. Though you pay a level cost throughout the life of the policy just like T100, the difference is that you will start to build up a cash value in the policy. If you cancel the policy after a few years you will actually receive a percentage of the cash value back as a refund. This cash value can be borrowed against as well.

 

  • Universal Life

When used properly for the right type of client this can be a powerful product that has a lot of flexibility. Universal life can help you customize the way your insurance is structured. If you have a combination of permanent and temporary needs, Universal Life may be for you. You can add term insurance to a Universal Life policy to help cover certain needs that will disappear over time. It also allows for investment within your policy that can earn income and help reduce your premiums going forward. Keep in mind, though, that investments can also lose value, and the investment component of a Universal Life policy is no different. This type of insurance requires careful planning and consideration. An agent can determine if it is right for you and your family.


Iain

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