Life Insurance
A life insurance policy functions as a crucial safeguard for the financial interests of your family, or anyone who has an insurable interest in your life, in the event of your death. The policy, in its essence, offers a tax-free cash benefit to individuals you designate as beneficiaries – usually your dependents. This financial support is designed to serve a multifaceted purpose. Firstly, it aids in addressing immediate financial needs, such as outstanding debts and funeral expenses, alleviating the burden on your loved ones during a challenging time.
Life insurance serves as a vital financial buffer, sustaining your dependents’ standard of living and mitigating the impact of your passing, enabling them to navigate daily life without significant financial strain.
Beyond the primary use of life insurance, which focuses on protecting your family’s financial interests in the event of your death, these policies offer additional financial benefits:
Accumulate Savings for Retirement: While ensuring protection through life insurance, you can simultaneously build a financial cushion for your later years.
Philanthropic Donations: You can name a charity as a beneficiary, contributing to philanthropic causes by donating some or all of the death benefit, leaving a lasting impact on organizations or causes that matter to you.
Estate Tax Coverage: Life insurance strategically covers estate taxes upon your death, preventing hefty tax burdens on heirs. The policy’s payout aids in settling these taxes, preserving more assets for your beneficiaries.
In essence, life insurance extends beyond mere protection and can be a versatile financial tool with potential benefits for retirement savings, philanthropic donations, and estate planning.
Term Life Insurance vs. Bank Creditor Mortgage Life Insurance
Beneficiary Control:
- Term life insurance policyowners have the autonomy to choose and modify beneficiaries. However, in bank creditor mortgage life insurance, the lender is typically the beneficiary, and any changes may necessitate lender approval or have limitations.
Coverage Control:
- Term life insurance allows policyowners to customize coverage based on life changes, whereas bank creditor mortgage life insurance is typically rigidly tied to the loan amount and lacks customization options.
Duration Alignment:
- Term life insurance allows policyowners to align coverage duration with specific financial responsibilities or milestones, providing flexibility in coverage duration. Bank creditor mortgage life insurance is typically tied to the mortgage term, which might not align perfectly with the insured’s overall financial strategy.
Flexibility in Coverage:
- Term life insurance offers flexible coverage durations, ranging from 10 to 30 years, allowing policyowners to tailor coverage to their needs. In contrast, bank creditor mortgage life insurance may have more rigid terms.
Flexibility in Payout:
- Term life insurance provides a death benefit that can be used by beneficiaries for any purpose. In contrast, bank creditor mortgage life insurance is designed to specifically cover the outstanding mortgage balance only.
Portability:
- Term life insurance is portable, allowing you to transfer the policy when switching banks. In contrast, bank creditor mortgage life insurance is typically tied to a specific loan or mortgage and lacks portability.
Premium Cost:
- Term life insurance premiums are typically lower than those of bank creditor life insurance. Banks may impose higher premiums for creditor insurance, with costs often bundled into the loan and subject to potential interest accumulation.
Underwriting Process:
- Term life insurance usually involves a comprehensive underwriting process for accurate risk assessment before approval. In contrast, bank creditor life insurance may have a simplified underwriting process but may lack detailed information about the insured.
Examples of Plans
Term Life Insurance:
- Flexible term options: Choose from 10, 15, 20, 25 or 30 years to match your coverage needs.
- Stable premiums throughout coverage.
- Payout on insured’s death during term.
- Terminal illness benefit: Access to part of death benefit.
- Convertible to a Permanent Life or Universal Life insurance policy for changing needs.
- Renewable coverage, no medical exam.
Participating Life Insurance:
- Covers the insured for their entire lifetime.
- Level premiums
- Accrues cash value, accessible through loans or withdrawals.
- Guaranteed death benefit for beneficiaries.
- Often includes, potential dividends based insurer’s financial performance.
- Borrow against policy’s cash value with interest; repay or deduct from death benefit if unpaid.
Coverage Options:
- Single life: One individual’s life is insured, and the payout occurs upon their death.
- Joint First-to-Die: Two individuals are insured jointly, and the payout occurs upon the first death.
- Joint Last-to-Die: Two individuals are insured jointly, with the payout occurring upon the last death.
Dividends Options:
- Accumulation: Reinvest dividends for more cash value.
- Cash Payout: Immediate liquidity in cash.
- Enhanced Coverage: 1-year term, and if there are any remaining dividends, they are used for Paid-Up Additional Coverage.
- Paid-Up Additional Coverage: Increase death benefit with dividends.
- Premium Reduction: Offset or reduce future premiums.
Premium Payment Options:
- Limited-pay (e.g., 10, 15, or 20 years): Pay premiums for a set period; coverage is fully paid thereafter.
- Continuous premium: Pay regular, ongoing premiums usually until age 100.
Universal Life Insurance:
Adjustable Death Benefit:
- Policyowners have the flexibility to increase or decrease the death benefit based on changing financial circumstances or needs.
Adjustable Coverage Period:
- Some universal life policies allow policyowners to extend or reduce the coverage period, providing flexibility to address evolving life circumstances.
Cash Value Accumulation:
- The policy accumulates a cash value over time, influenced by interest rates or investment performance, serving as a potential source of savings.
Cash Value Growth:
- The cash value component can grow based on interest rates or investment performance, offering a potential avenue for increased savings.
Flexible Premiums:
- Universal life insurance provides policyowners with the flexibility to adjust premium amounts and frequency based on changing financial situations.
Policy Loans:
- Depending on the accumulated cash value, policyowners may be eligible to take out loans against the policy for various financial needs, enhancing liquidity and financial flexibility.
Joint Life Insurance:
Cost Savings:
- Joint life insurance policies can be more cost-effective than two separate single life policies. Premiums for joint policies are often lower than the combined cost of two individual policies.
Convenience:
- Managing a single joint policy may be more convenient than handling two separate policies, as it involves a single premium payment and policy document.
Estate Planning:
- Joint life insurance is often used in estate planning to provide liquidity for estate taxes or to ensure an inheritance for heirs. It can be beneficial for couples with shared financial responsibilities and estate planning goals.
Survivorship Options:
- Some joint life policies offer a survivorship option, paying out the death benefit upon the second death. This can be advantageous for providing extended financial protection or meeting specific financial needs after both individuals have passed away.
Examples of Benefit Riders & Riders
Benefit Riders:
Accidental Death Benefit Rider:
- Extra coverage for insured’s accidental death within 365 days of injury, before benefit expiry.
Disability Waiver of Premium Benefit Rider:
- Waives premium payments if policyowner becomes totally disabled. Subject to qualification criteria.
Riders:
Child’s Term Life Insurance Rider:
- Allows coverage for children under one policy, ending on the earlier of the rider anniversary after their 25th birthday or the policy anniversary near insured’s age 65.
Guaranteed Insurability Option Rider:
- Allows life insured to buy extra insurance on specified option dates without additional medical evidence.