Life Insurance

Life insurance is a contract between an insurance company and a policyholder in which the policyholder pays regular premiums and, in exchange, the insurer pays a death benefit to the policy's beneficiaries when the insured dies. 

There are three main types of life insurance: whole life, universal life, and term life insurance. 

• Whole Life:  Whole life insurance, or whole of life assurance, sometimes called "straight life" or "ordinary life," is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date. 
• Universal Life:  Universal life insurance (often shortened to UL) is a type of cash value life insurance. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate (often 2%). 
• Indexed Universal Life: When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level premiums throughout the insured's lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table (usually p. 3 of a contract). That not only allows for easy comparison of costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since cash is of no consequence. 
• Term Life:  Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.