Permanent vs Term Life Insurance
Many people know they need life insurance but aren’t sure which type fits their unique situation. It is important to incorporate life insurance into your financial plan. The first step is understanding the different types of life insurance, and how they can align with your long-term goals.
Term Life Insurance
The first type is term life insurance. Term life insurance offers coverage for a specific period, whether it is 10, 20, or even 30 years. Compared to permanent life insurance, term life insurance typically has lower premiums, and the death benefit is paid only if death occurs during the term or coverage.
Term life insurance is ideal for families looking to cover income replacement, pay off a mortgage, or planning for future college funding.
Permanent Life Insurance
Permanent life insurance offers coverage for life while premiums are being paid. Permanent life has higher premiums than term life insurance and builds cash value over time. This type of life insurance is ideal for clients who are seeking lifelong protection. Permanent life insurance is a useful tool for those interested in using insurance as a part of a financial strategy. Examining the different types of permanent life insurance products demonstrates how these can be incorporated into your financial plan.
Whole Life
Whole life insurance is the most traditional type of permanent life insurance. This type of policy provides lifelong coverage with fixed premiums and guaranteed benefits. Whole life insurance policies build cash value at a guaranteed rate and may also pay dividends.
Whole life insurance is best for those who prioritize predictability, stability, and guaranteed long-term value.
Universal Life Insurance (UL)
Universal life insurance offers lifelong coverage while offering more flexibility than whole life insurance. Key features of universal life insurance include flexible premiums, adjustable death benefits, and cash value tied to interest rates set by the insurance company.
Universal life insurance is best for those who want flexibility in premium payments and death benefit structure.
Indexed Universal Life Insurance (IUL)
Indexed universal life insurance is a policy where cash value growth follows a stock market index, such as the S&P 500. This product offers flexible premiums and adjustable death benefits like a standard universal life policy. An indexed universal life policy also provides upside potential from market index performance, as well as downside protection.
This type of permanent life insurance is best for individuals seeking growth potential while having some protection against market volatility.
Variable Universal Life Insurance (VUL)
This is a universal life policy where cash value is invested into sub-accounts such as mutual funds. For this product, there are flexible premiums and adjustable death benefits. Variable universal life insurance has investment-driven growth potential. With this comes market risk, as cash value can fluctuate as the markets go up and down.
Variable universal life insurance is best for individuals who are comfortable with investment risk and want to use life insurance as part of their long-term financial plan.
Conclusion
A good starting point for determining which policies fit your financial plan is to determine your goals and what is important to you. Contact your financial advisor today to begin the conversation about integrating life insurance into your broader financial plan.
This article is for information purposes only and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. Diversification does not guarantee a profit or protect against loss in declining markets. Investing involves risk, including the potential loss of principal. West Michigan Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Securities offered through Level Four Financial, LLC, member FINRA/SIPC.
The material has been gathered from sources believed to be reliable, however West Michigan Advisors cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through West Michigan Advisors. Advisory services are only offered where West Michigan Advisors and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. Securities offered through Level Four Financial, LLC, a registered broker dealer and Member of FINRA/SIPC