Back to Basics: How well do you understand life insurance products?

When considering the right life insurance products for your clients, there are a variety of options available that offer a range of features. I've recognized that there's a common misunderstanding over these different product options. Because of this, I have created an outline of the various features of three insurance products to help financial professionals in their client-facing life discussions.

With that said, making the right decision should be based on the specific needs of your clients, so it's important to fully understand the product options available in addition to your clients' individual situations. So, here's a layout of the basic features of term insurance, whole life insurance, and indexed universal life insurance:

Term Insurance

Term life insurance provides clients with temporary life insurance for a specific number of years. You can choose coverage for a "term" of 10, 15, 20, or 30 years (or more).

Here are more aspects of term insurance:

  • Term life builds no cash value inside the policy. It’s "pure death benefit protection.”
  • The policy premium is generally less expensive than permanent life insurance options.
  • It’s the lowest cost type of life insurance.
  • It lasts for a set period.
  • These policies pay the beneficiary the face amount of the term life policy if the insured person passes away during the term of the policy.
    For example, a 10-year term life policy with a face amount of $250,000 would pay $250,000 to the beneficiary if the insured dies any time during those 10 years.
  • Before the end of the term, the life insurance policy owner may be able to convert the term life insurance policy into a permanent life insurance policy. The owner usually has a specific number of years during the term life insurance policy to convert the policy.
  • A beneficiary does not have to pay taxes on life insurance benefits under most conditions, according to the IRS.
  • The coverage ends if the policy owner outlives the policy term.

Whole Life Insurance

Whole life insurance offers permanent coverage for the lifetime of the policyholder. For individuals seeking to provide for their families after death, it's generally considered among the more stable and reliable policy type.

Listed below are more components of whole life insurance:

  • The policy values grow tax-deferred, and premiums usually don’t increase as the client ages.
  • It can be a practical option for those individuals needing to provide for dependents after their death, regardless of when they pass.
  • It can be designed to last a lifetime with a limited number of premiums (such as a 20 pay or pay to age 60).
  • If your client needs or wants to stop paying premiums, they can use the available cash value to continue their current insurance protection.
  • If the amount of premiums paid or the cash value of the policy is not enough to pay the policy charges, the policy lapses, and there’s no longer a policy in force or death benefit.
  • Many times, a life insurance beneficiary receives the death benefit income tax-free. 

Indexed Universal Life Insurance (IUL)

An IUL is a type of universal life policy that, similar to whole life, is permanent and provides a tax-free death benefit. The universal aspect means that premiums are flexible, and the policyholder can alter the components (such as a death benefit, index crediting, and premium) throughout the life of the policy.

Other features include:

  • An offered cash value that grows tax-deferred.
  • In most cases, a life insurance beneficiary receives the death benefit tax-free.
  • Can be designed to last for the lifetime of the insured with a limited number of premiums (such as pay to 65 or a 10 pay).
  • It can be designed to offer the client income at a future date.
  • As the policy is not directly purchased in the market, IULs help provide guarantees to principal while continuing to provide an opportunity to receive competitive interest rates when the market is performing well.
  • Even in a down market, the cash value is protected by a minimum crediting. (This means the index credit can’t go lower than zero).
  • If your client needs or wants to stop paying premiums, they can use the available cash value to continue their current insurance protection.
  • If the amount of premiums paid or the cash value of the policy is not enough to pay the policy charges, the policy lapses, and there’s no longer a policy in force or death benefit. 

Full knowledge of these options along with your clients' unique needs will help you arrive at the right solutions and build meaningful relationships along the way. 

Interested in learning more about the value of an IUL? Download our guide on how to overcome three big IUL misconceptions!

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Cynthia Callis - National Sales Consultant

Cynthia Callis has been an award-winning insurance wholesaler for 15 years. She has worked all across the country partnering with agents and financial advisors to find workable, revenue producing solutions that best meet their clients’ insurance needs. She blends a consultative sales approach and disciplined business knowledge with a deep grasp of insurance solutions. She has earned the trust of her agents and is viewed as a valued business collaborator.

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