Life insurance is pretty straightforward.
If you have a policy in force, the carrier will pay a death benefit to your beneficiaries when you die.
Although the premise is simple, life insurance can take many forms, and it can be difficult to understand how each product works.
Below, we have laid out the different life insurance products available through The Brokerage:
Term life insurance
Term life insurance is the most popular and least expensive type of life insurance.
It provides coverage for a set duration of time, called the “Level Term Period”. These term lengths typically range from 10 – 40 years.
If the client dies during the term period, the insurance carrier will pay out the death benefit to the client’s beneficiary. Additionally, the premiums will not increase during the level term period.
But what happens after the level term period ends?
In some term products, the policy will simply lapse and your client will no longer have coverage. In other term products, your client’s policy will become an Annual Renewable Term (ART), which means that your client’s premiums will rise every year and will quickly become unaffordable.
Most term products have a conversion option.
This allows your client to convert their term policy into a permanent policy (such as whole life or universal life) with the same carrier.
The carrier will not require any additional underwriting when converting the policy. Most carriers require you to convert the policy before the Level Term Period expires or before age 70.
Despite the increase in premiums, conversions can be incredibly helpful if your client still needs coverage past their level term period.
Especially if they have health conditions that make them uninsurable.
Pros:
- Very affordable
- Provides guaranteed coverage for a set period
Cons:
- Not permanent coverage
- Does not build cash value
Whole Life insurance
What if your client is interested in life insurance that is guaranteed to last their entire life?
Whole Life Insurance is the most well-known type of permanent life insurance.
Whole life insurance policies are typically guaranteed to age 121, which means that your client does not have to worry about a term period expiring. Additionally, whole life insurance premiums never rise over the life of the policy.
Whole Life policies come with an additional benefit: cash value accumulation.
In a nutshell, there is a savings account inside a whole life insurance policy that grows over time.
Your client can use that money – known as the cash value – while they are still alive. This can be beneficial for the client in several ways.
For example, the client can take a low-interest loan from their policy’s cash value.
Additionally, if the client is unable to pay their premiums, the carrier can deduct the premium payment from the policy’s cash value.
Also, if the client determines that they no longer need their whole life insurance policy, they can withdraw all the cash value and “surrender” the policy.
But these benefits come at a cost
Whole Life is typically the most expensive category of life insurance.
If getting the most amount of coverage for the least amount of money is the primary goal for your client, they may be better off with another type of life insurance.
Pros:
- Provides permanent coverage
- Builds cash value
Cons:
- Expensive
Universal Life Insurance
If your client is interested in permanent life insurance but whole life is too expensive, universal life insurance may be a solution.
With this type of policy, your client has permanent coverage with premiums that are less expensive than a comparable whole life policy.
There are two main types of Universal Life Insurance at The Brokerage: Guaranteed Universal Life (GUL) and Indexed Universal Life (IUL).
Guaranteed Universal Life
GUL policies share some similarities with whole life policies: they are typically guaranteed to age 121 and your client’s premiums are guaranteed not to rise.
However, unlike whole life policies, GULs build little-to-no cash value.
If your client wants to save a few bucks on their premium, they can lower the guarantee age of their GUL from 121 to 100, 95, 90, or even 85.
Be warned: if your client lives past the guarantee age of their GUL, they no longer have coverage.
You and the client should not mistake the “Guaranteed” in the name for Guaranteed Issue. All GULs require some form of underwriting.
Pros:
- Permanent coverage
- More affordable than whole life
Cons:
- Does not build cash value
Indexed Universal Life
IULs are another type of permanent life insurance.
These types of policies do build cash value, but the way IULs accumulate cash value is complex and can be difficult to explain to clients.
An IUL’s cash value is tied to a stock index, such as the S&P 500 or NASDAQ.
- When the associated stock index is performing well, your client’s IUL policy will accumulate cash value.
- When the stock index is performing poorly, the policy may not accumulate cash value.
There may be additional components such as bonuses, multipliers, and fees that affect how your client’s IUL will perform in the long run.
Not all IULs have a No Lapse Guarantee.
If your client’s policy is not performing well, they may have to pay increased premiums to keep it in force or the policy can lapse before your client dies.
In summary, IULs can be beneficial to your clients and may have a place in your insurance portfolio, but there are many moving parts to this type of policy that should be considered.
Pros:
- Permanent coverage
- Builds cash value
- Can be more affordable than whole life
Cons:
- Complex and more difficult to explain to clients
- The death benefit isn’t guaranteed
Final Expense
Put simply, Final Expense insurance covers funeral costs.
Since these are whole life policies, your client’s premiums are guaranteed not to rise, and the death benefit is guaranteed to age 121 (100 with some Final Expense products).
Typically, these policies have smaller coverage amounts than traditional whole life – as low as $1,000.
Final Expense is usually marketed and sold to senior clients and it’s a great cross-selling opportunity for your Medicare clients.
Some Final Expense options have no underwriting.
These are known as Guaranteed Issue, so that your clients in failing health have some life insurance options.
Pros:
- Smaller face amounts to meet your client’s budget
- Simplified underwriting
- Permanent coverage
Cons:
- Not intended for younger clients
Conclusion
I hope this quick article helped you to better understand the different types of life insurance available to your clients.
If you have any questions about how to get started, need marketing support, or want to learn more about our carriers, don’t hesitate to contact us.
