Industry Experience

Life Insurance

TERM INSURANCE. If an estate plan is to be built on a solid foundation, life insurance protection is essential. Term insurance provides protection for a limited period of time. However, the premium for this protection will usually increase, until it becomes prohibitively expensive for most people to maintain. While term insurance can provide a lot of protection for a lesser cost, it builds no cash values and has no permanent values.

WHOLE LIFE INSURANCE, in contrast to term insurance, provides for a tax-deferred build-up of cash values over the life of the contract.  This cash value element, combined with level or limited premium increases, means that the death benefit will be available for an unlimited period. While the outlay for permanent insurance, including whole life, is greater than term insurance in the early years, most plans provide for payment of a level premium. Even if the plan requires an increasing premium, these increases are usually limited in both amount and duration. Typically, both the cash values and the death benefits are guaranteed, unless they are dependent upon payment of projected dividends.

UNIVERSAL LIFE INSURANCE offers flexible premium payments, an adjustable death benefit, and cash values that are sensitive to current interest rates. Most contracts pay a current interest rate which is highly competitive with that available in the money market. However, these rates are subject to change and are not guaranteed over the life of the contract. The guaranteed interest rate is usually very modest and will likely result in a lapse of the policy if additional premiums are not paid. Likewise, most universal life policies offer lower current (nonguaranteed) mortality charges, but provided for higher guaranteed mortality charges. Taken together, the lower guaranteed interest rate and higher guaranteed mortality charges represent the “down-side risk” of a universal life contract.

EQUITY INDEXED LIFE INSURANCE is a product that ties the crediting rate to an index, such as the S&P 500. These products offer upside if the equity market increases (these products typically have a cap of 10 or 12 percent) but limit the exposure (usually to a floor of zero or 1 percent).

VARIABLE LIFE INSURANCE is similar to universal life insurance, except that the underlying cash values can be invested in an equity portfolio, typically a mutual fund or bonds. The policy owner is usually given the opportunity to redirect his investment to another portfolio although some limitations and restrictions may be imposed.

Life Insurance