Understanding Life Insurance, Fixed Policies

[tags]finance, life insurance, assets, investing, legacy[/tags]

Purchasing a Life Insurance Policy can be a stressful time for everyone. The decisions made about what happens after your death can be very emotional. So, if you haven’t already, fill out this generic Will. Sign it and date it, don’t worry about the witnesses. There are two basic types of policies, fixed and variable. I will discuss the fixed policies in this post.

Fixed Policies:

Let’s start with the cheapest policy type, Term Life Insurance. This is the pay-as-you-go plan. Premiums are paid to keep the policy in effect. At the end of the Term or at the stoppage of premiums, the policy is canceled.

Next in line is the Whole Life Insurance policy. The is a bit more expensive than the Term policy, however, as it says, you are covered for your Whole Life. At some point, you can actually stop the premium payments and still be covered. Some policies also have a cash value.

This brings us to the Universal Life Insurance. Specifically, the Equity-Index Universal Life (EIUL) Policy. This is similar to Whole Life, in that you can stop premium payments and still be covered. This type of policy also has an investment side. Any cash value can be invested in an Index, the Standard and Poor’s Index is most often used to calculate the earnings. This policy is a bit more expensive than the other two. This policy may have a minimum guarantee earning level. Typically 1%, so you can “never lose” your cash value. But, if you use inflation in you calculations, like you should, you will see that even with this guarantee you will lose purchasing power. Most have a “Earnings Cap”, typically 12%. There are policies that don’t have a cap on earnings. Contact your investment adviser for more information.