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A premium is the amount of money charged by your insurance company for the plan you've chosen. It is usually paid on a monthly basis, but can be billed a number of ways. You must pay your premium to keep your coverage active, regardless of whether you use it or not.
Link: https://www.medmutual.com/For-Individuals-and-Families/Health-Insurance-Education/Health-Insurance-Basics/Understanding-Costs.aspx#:~:text=A%20premium%20is%20the%20amount,you%20use%20it%20or%20not.

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In almost any area of your life, if you don't have a clear idea of your expenses, you may feel like you're not in control. But, when you get clear about all the costs, you feel in control, helping you make the right choices.

To get a clear understanding of your health insurance costs, the first step is to look at all the key types of costs, not just obvious expenses. It's a lot like adding up your automobile expenses - some of the clear costs include your car payment, insurance, gas, oil changes and repairs. Less obvious costs include the finance charge on your payment, windshield wiper fluid and parking tickets.

Let's take a look at obvious health insurance costs and some examples.

Obvious Health Insurance Costs

Your health insurance plan premium is an obvious cost, and most people pay it on a monthly basis. Your premium is the payment you make to your health insurance company that keeps your coverage active. Other more obvious health insurance costs include deductibles, coinsurance and copayments. You may already be familiar with some of these terms. Here are quick definitions and simple examples.

Premium

A premium is the amount of money charged by your insurance company for the plan you've chosen. It is usually paid on a monthly basis, but can be billed a number of ways. You must pay your premium to keep your coverage active, regardless of whether you use it or not.

You've researched rates and the health plan you've chosen costs $175 per month, which is your premium. In order to keep your benefits active and the plan in force, you'll need to pay your premium on time every month.

Deductible

A deductible is a set amount you have to pay every year toward your medical bills before your insurance company starts paying. It varies by plan and some plans don't have a deductible.

Your plan has a $1,000 deductible. That means you pay your own medical bills up to $1,000 for the year. Then, your insurance coverage kicks in. At the beginning of each year, you'll have to meet the deductible again.

Coinsurance

Coinsurance is the percentage of your medical bill you share with your insurance company after you've paid your deductible. Unless you have a policy with 100 percent coverage for everything, you have to pay a coinsurance amount.

You have an "80/20" plan. That means your insurance company pays for 80 percent of your costs after you've met your deductible. You pay for 20 percent.
Coinsurance is different and separate from any copayment.

Copayment (or "copay")

Your copayment, or copay, is the flat fee you pay every time you go to the doctor or fill a prescription. It's usually a relatively small dollar amount. Copays do not count toward your deductible.

Let's say your plan has a $20 copayment for routine doctor's visits. That means you have to pay $20 each time you go. Copayments are different than coinsurance.

Less Obvious Health Insurance Costs

Like any type of insurance plan, there are some expenses that may be partially covered, or not at all. You should be aware of these expenses, which contribute to your total healthcare cost. Less obvious expenses may include services provided by a doctor or hospital that is not part of your plan's network, plan limits for specific kinds of care, such as a certain number of visits for physical therapy per benefit period, as well as over-the-counter drugs.

Tips for Calculating Your Total Health Insurance Cost

To help you find the right plan that fits your budget, look at both the obvious and less obvious expenses you might expect to pay. Here are some tips for calculating your total health insurance cost:

Deductibles: A deductible is a way for you to share in the cost of your healthcare and, in return, you pay a lower premium. If you have different levels to choose from, pick the highest deductible amount that you can comfortably pay in a calendar year. Learn more about deductibles and how they impact your premium..

Office Visits: Estimate your total number of in-network doctor's visits you'll have in a year. Based on a plan's copayment, add up your total cost.

Prescriptions: If have prescription drug needs, add up your monthly cost that won't be covered by the plan you are looking at. Even plans with comprehensive drug coverage may have a copayment.

Other Care: Figure in dental, vision and any other regular and necessary care for you and your family. If these expenses are high, you may want to consider a plan that covers these costs.

It's a little work, but looking at all expenses, not just the obvious ones, will help you find the plan you can afford. It will also help you set a budget. This kind of knowledge will help you feel in control.

This Medical Mutual of Ohio and its Family of Companies (collectively, "Medical Mutual") website may contain links to other Internet sites ("Third Party Sites") that are not maintained by or under the control of Medical Mutual. These links are provided solely for your convenience, and you access them at your own risk. Medical Mutual makes no warranties or representations about the contents of products, services or information offered in such Third Party Sites. Consequently, Medical Mutual is not and cannot be held responsible for the accuracy, copyright compliance, legality or decency of material contained in Third Party Sites linked to this Medical Mutual website.

© 2020 Medical Mutual of Ohio ®

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are health insurance premiums deductible

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Health Insurance Costs Like Premiums & Deductibles | Medical Mutual

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In almost any area of your life, if you don't have a clear idea of your expenses, you may feel like you're not in control. But, when you get clear about all the costs, you feel in control, helping you make the right choices.

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A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. They receive the payment by first, recipients needing to file a death claim with the insurance company by submitting a copy of the death certificate. Insurance companies then review the claim and issue the payout.
Links: https://www.iii.org/article/what-beneficiary
https://www.masonfinance.com/blog/life-insurance-payout/

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As part of naming beneficiaries, you should identify them as clearly as possible and include their social security numbers. This will make it easier for the life insurance company to find them, and it will make it less likely that disputes will arise regarding the death benefits.

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Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash-value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it's only available within a variable life insurance policy.
Link: https://www.investopedia.com/ask/answers/08/variable-life-insurance.asp

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What Is Variable Life Insurance?

Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash-value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it's only available within a variable life insurance policy. A typical variable life policy will have several sub-accounts to choose from, with some offering upwards of 50 different options.

The cash value account has the potential to grow as the underlying investments in the policy's sub-accounts grow. At the same time, as the underlying investments drop, so may the cash value.

Key Takeaways

Understanding Variable Life Insurance

The appeal to variable life insurance lies in the investment element available in the policy and the favorable tax treatment of the policy's cash value growth. Annual growth of the cash value account is not taxable as ordinary income. Furthermore, these values can be accessed in later years and, when done properly through loans using the account as collateral, instead of direct withdrawals, they may be received free of any income taxation.

Similar to mutual funds and other types of investments, a variable life insurance policy must be presented with a prospectus detailing all policy charges, fees, and sub-account expenses.

Additionally, some of the best life insurance companies, including Prudential and New York Life, offer variable life insurance policies.

Advisor Insight

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Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash-value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it's only available within a variable life insurance policy.

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Universal life insurance allows you to pay a monthly fee that splits into two parts: One covers life insurance and the other goes into savings and investment. It's meant to be more flexible by allowing you, the policy holder, to choose how much premium you pay within a certain range.
Link: https://www.daveramsey.com/blog/universal-life-insurance

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Congratulations! You've finally gotten around to thinking about life insurance. We know it isn't an easy subject to get excited about, so we'll make it simple for you.

You're here because you heard about universal life insurance. Maybe someone told you it's a great way to make money because half of what you pay each month goes into a built-in savings account. And maybe you thought, That sounds like a win-win. I'm getting some!

Hang on a second! You should have the facts before you start calling up insurance companies. We want to show you why it's never a smart move to invest money inside your life insurance. Are you ready? Let's dive in.

What Is Universal Life Insurance?

Universal life insurance is a type of life insurance that lasts your entire life-into your 90s and beyond. It's sometimes known as cash value life insurance. That's because it has a savings account inside the policy.

You pay into this savings account whenever your insurance premium is due (the premium is the monthly cost that keeps the insurance going). If you've built up cash value, you're free to take some out-like you would with a regular bank account. But it's not as easy as you might think. We'll explain why later.

How Does Universal Life Insurance Work?

With universal life insurance, you pay a monthly fee that splits into two parts: One covers life insurance and the other goes into savings and investment.

It's meant to be more flexible by allowing you, the policy holder, to choose how much premium you pay within a certain range. The minimum amount is set by the cost of insurance, which includes your death benefit and administrative fees.

Anything you pay over this premium is added to your cash value, which is guaranteed to grow according to a minimum annual interest rate set by the insurance company (though it can grow faster depending on how well the market is doing).

Many people choose to pay the maximum premium possible, which is set by the IRS, in the early years so they can build a larger cash value (and then use that cash to cover premiums later in life). But this is a risky move since the cost of insurance will increase the older you get! Question is, will you have enough cash value to cover it?

Types of Universal Life Insurance

Universal life insurance can get pretty complicated when you start to unpack it. In fact, there are actually three types to choose from. That's three types of life insurance you definitely don't need.

Indexed Universal Life

You've heard of the stock market, right? Have you heard of indexes like the S&P 500? The Dow Jones Industrial Average? Nasdaq? They measure how well the market is doing. For anyone with an indexed universal life insurance plan, the cash value is linked to one of these indexes. So if the market is doing well, the cash value will go up. But there is a catch - the rate will always be a little lower than the performance of the index because the insurance company will take their hefty share. And if the market is not doing well-you guessed it-the value will drop. This will impact your premiums for better or for worse.

Guaranteed Universal Life

If you don't like the idea of having your premiums tied to market performance, the insurance agent may try to sell you guaranteed universal life insurance instead. With these policies, your premiums stay the same regardless of how well the index performs because the interest rates are set from the very beginning of the policy.

And it has a "no-lapse" guarantee (hence the name), so as long as you send in your premium check, you'll have coverage for the rest of your life. This is the least risky universal life policy.

But here's the catch. Since your premiums don't adjust based on market performance, there's hardly any cash value in it. That's because this policy isn't really designed to build cash. It's too busy trying to keep up with the cost of insurance.

Variable Universal Life

This life insurance policy lets you invest the cash value part into a mutual fund. A mutual fund is a pool of money managed by a team of investment pros. Your cash value makes up part of that pool, and it's invested into lots of different companies at once. Don't get us wrong.

Mutual funds are a fantastic way to invest because they diversify your risk (that's just fancy Wall Street talk for making sure you aren't putting all your investment eggs in one basket). But remember, life insurance is meant support your loved ones once your pass, not for investing. Those massive fees will take a major bite out of your earnings.

As we'll show you, it doesn't matter which of these you choose. All three policies come with killer fees. And if you want the best bang for your buck, you won't invest in cash value. Stick with investments outside of life insurance.

Understanding Universal Life Insurance and Cash Value

Universal life, along with variable and whole life, are the three amigos in the world of cash value life insurance. They do the job of covering your income if you die, but they also act as a savings account. Cash value is the cash build-up in that savings account. They set their rates of return for cash value just like a bank would.

Though they can vary quite a bit, whole life returns average about 2%. Universal and variable rates are harder to nail down, but they can be considerably higher than whole life. BUT, the as we've said over and over again, the fees tacked to a universal life policy will eat you alive.

That's why you should always invest in a good growth mutual fund that is completely separate from your insurance policy. You could earn, on average a 10% return without those heavy fees.

Plus, when you break down how much of your cash value premium goes toward making you cash, you'll probably die a little inside, especially if you compare it to term life insurance (which we'll look at later). Do the math and you'll see, just like orange juice on cereal, you should keep your investments out of your life insurance!

What Happens to the Cash Value If I Don't Use It?

There are a lot of bad things about universal life insurance, but the worst is what happens to that cash value when you die. The only payment your family will get is the death benefit amount. Any cash value you've built up will go back to the insurance company. Just let that sink in a minute.

Plus, if you ever withdraw some of the cash value, that same amount will be subtracted from your death benefit amount. That's a lose-lose situation. You can faithfully invest for decades, but one way or another that money will go back to the insurance company.

Truth is, that's how they make their money-and it's why they're so quick to sell it to you in the first place. Don't let them fool you!

How Much Are the Fees?

The fees you'll pay for cash value life insurance are astronomical. There are fees to have the insurance in the first place, fees to cover commissions and fees to cover expenses for the insurance company. And the thing is, because of those crazy-high fees, you will build zero cash value in the first three years. There's a reason insurance companies try to sell you universal life insurance. It's because they make more money if they do.

Universal vs. Whole Life Insurance

Chances are, if you're here reading about universal life insurance, you've probably heard of whole life insurance too. Both are designed to be long term. Both build cash value. And both are terrible ideas! But here's how they're different.

The Premiums

Universal life comes with what insurance geeks call flexible premiums. This means you have some say in how much you put into the cash value side of your policy and how much you'll pay in premiums, but there are still rules for this set by your insurance provider. Whole life premiums are fixed, so they can't change even if you wanted them to.

The Penalties

Remember earlier when we said that if you wanted to withdraw some of the cash value from universal life insurance, it would be taken out of the death benefit? Well, whole life insurance comes with a penalty too. If you take out a loan against your cash value, you'll pay ridiculous interest rates on that loan.

And if you choose to surrender your whole like policy, you'll be smacked with a painful surrender charge. And if you do that, you will no longer have coverage. Isn't that the reason we took out life insurance in the first place?

Universal vs. Term Life Insurance

Unlike universal, term life insurance only lasts for a set number of years. We recommend a term of 15 to 20 years. And it's just life insurance-nothing more, nothing less. Without that cash-value dead weight, the premiums are much, much cheaper.

So if you were to take the money you'd save going with term life ($36 a month) and invest it in a mutual fund over 20 years, you'd end up with $27,217! And all of that would go into your pocket-not the insurance company.

Plus, you won't need universal's lifetime coverage if you start investing for retirement now. You'll be self-insured. What do we mean by self-insured? If you invest 15% of your household income for the next 20 years, by the time your term life plan comes to an end, you won't even need that death benefit.

Term and universal do have one thing in common: If you die during the policy, the insurance company will pay the death benefit. But it's where they're different that really counts. You'll need deep pockets if you choose universal life insurance.

How to Choose the Right Life Insurance Policy

Remember what Dave says about life insurance: "Its only job is to replace your income when you die." If you get a term life insurance policy 15-20 years in length and make sure the coverage is 10-12 times your income, you'll be set. Life insurance isn't supposed to be permanent.

You may be wondering, What about investments? How do I prepare for my retirement? If you're following Dave's Baby Steps, you'll know about Baby Step 4. By setting aside 15% of your household income and putting it into good mutual funds or Roth IRAs, you'll be in a really strong position financially-and basically self-insured.

By investing outside of your insurance, you can control how and where your money is invested. Don't leave it up to the insurance company. They're not working for you. You are the best person to control your money!
To get the right amount of Term Life Insurance in place for your family, Dave's chosen Zander Insurance to shop rates for you. You can choose the quote that works best for you and then get the policy finalized. Then you can breathe a sigh of relief that your family will be protected if something happens.

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Congratulations! You've finally gotten around to thinking about life insurance. We know it isn't an easy subject to get excited about, so we'll make it simple for you. You're here because you heard about universal life insurance. Maybe someone told you it's a great way to make money because half of what you pay each month goes into a built-in savings account.

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Whole life insurance provides coverage for the life of the insured.
Link: https://www.investopedia.com/terms/w/wholelife.asp

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What Is Whole Life Insurance?

Whole life insurance provides coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. These policies are also known as "permanent" or "traditional" life insurance.

Whole life insurance policies are one type of permanent life insurance. Universal life, indexed universal life, and variable universal life are others. Whole life insurance is the original life insurance policy, but whole life does not equal permanent life insurance.

Key Takeaways

Understanding Whole Life Insurance

Whole life insurance guarantees payment of a death benefit to beneficiaries in exchange for level, regularly due premium payments. The policy includes a savings portion, called the "cash value," alongside the death benefit. In the savings component, interest may accumulate on a tax-deferred basis. Growing cash value is an essential component of whole life insurance.

To build cash value, a policyholder can remit payments more than the scheduled premium. Additionally, dividends can be reinvested into the cash value and earn interest. The cash value offers a living benefit to the policyholder. In essence, it serves as a source of equity. To access cash reserves, the policyholder requests a withdrawal of funds or a loan. Interest is charged on loans with rates varying per insurer. Also, the owner may withdraw funds tax free up to the value of total premiums paid. Loans that are unpaid will reduce the death benefit by the outstanding amount. Withdrawals reduce the cash value but not the death benefit.

The death benefit is typically a set amount of the policy contract. Some policies are eligible for dividend payments, and the policyholder may elect to have the dividends purchase additional death benefits, which will increase the amount paid at the time of death. Alternatively, unpaid outstanding loans taken against the cash value will reduce the death benefit. Many insurers offer riders that protect the death benefit in the event the insured becomes disabled or critically or terminally ill. Typical riders include an accidental death benefit and waiver of premium riders.

The named beneficiaries do not have to add money received from a death benefit to their gross income. However, sometimes the owner may designate that the funds from the policy be held in an account and distributed in allotments. Interest earned on the holding account will be taxable and should be reported by the beneficiary. Also, if the insurance policy was sold before the death of the owner, there may be taxes assessed on the proceeds from that sale.

As is the case with any kind of permanent policy, it's important to thoroughly research all firms being considered to ensure they're among the best whole life insurance companies currently operating.

Example of Whole Life Insurance

For insurers, the accumulation of cash value reduces their net amount of risk. For example, ABC Insurance issues a $25,000 life insurance policy to S. Smith, the policy owner and the insured. Over time the cash value accumulates to $10,000. Upon Mr. Smith's death, ABC Insurance will pay the full death benefit of $25,000. However, the company will only realize a loss of $15,000, due to the $10,000 accumulated cash value. The net amount of risk at issue was $25,000, but at the death of the insured it was $15,000.

History of Whole Life Insurance

From the end of World War II through the late 1960s, whole life insurance was the most popular insurance product. Policies secured income for families in the event of the untimely death of the insured and helped subsidize retirement planning. After the passing of the Tax Equity and Fiscal Responsibility Act (TEFRA) in 1982, many banks and insurance companies became more interest-sensitive.﻿﻿ Individuals weighed the benefits of purchasing whole life insurance against investing in the stock market, where annualized return rates for the S&P 500 were, adjusted for inflation, 14.76% in 1982 and 17.27% in 1983.﻿﻿ The majority of individuals then began investing in the stock market and term life insurance, rather than in whole life insurance.

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Whole life insurance provides coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. These policies are also known as "permanent" or "traditional" life insurance. Whole life insurance policies are one type of permanent life insurance.

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Term life insurance guarantees payment of a stated death benefit to the insured's beneficiaries if the insured person dies during a specified term.
Link: https://www.investopedia.com/terms/t/termlife.asp

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What Is Term Life Insurance?

Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to terminate.

How Term Life Insurance Works

When you buy a term life insurance policy, the insurance company determines the premiums based on the value of the policy (the payout amount) as well as your age, gender, and health. In some cases, a medical exam may be required. The insurance company may also inquire about your driving record, current medications, smoking status, occupation, hobbies, and family history.

If you die during the term of the policy, the insurer will pay the face value of the policy to your beneficiaries. This cash benefit-which is, in most cases, not taxable-may be used by beneficiaries to settle your healthcare and funeral costs, consumer debt, or mortgage debt among other things. However, if the policy expires before your death, there is no payout. You may be able to renew a term policy at its expiration, but the premiums will be recalculated for your age at the time of renewal. Term life policies have no value other than the guaranteed death benefit. There is no savings component as found in a whole life insurance product.

Because it offers a benefit for a restricted time and provides only a death benefit, term life is usually the least costly life insurance available. A healthy 35-year-old non-smoker can typically obtain a 20-year level-premium policy with a $250,000 face value for $20 to $30 per month. Purchasing a whole life equivalent would have significantly higher premiums, possibly $200 to $300 per month. Because most term life insurance policies expire before paying a death benefit, the overall risk to the insurer is lower than that of a permanent life policy. The reduced risk allows insurers to pass cost savings to the customers in the form of lowering premiums.

Interest rates, the financials of the insurance company, and state regulations can also affect premiums. In general, companies often offer better rates at "breakpoint" coverage levels of $100,000, $250,000, $500,000, and $1,000,000.

Example of Term Life Insurance

Thirty-year-old George wants to protect his family in the unlikely event of his early death. He buys a $500,000 10-year term life insurance policy with a premium of $50 per month. If George dies within the 10-year term, the policy will pay George's beneficiary $500,000. If he dies after he turns 40, when the policy has expired, his beneficiary will receive no benefit. If he renews the policy, the premiums will be higher than with his initial policy because they will be based on his age of 40 instead of 30.

If George is diagnosed with a terminal illness during the first policy term, he likely will not be eligible to renew once that policy expires. Some policies do offer guaranteed re-insurability (without proof of insurability), but such features, when available, tend to make the policy cost more.

Types of Term Life Insurance

There are several different types of term life insurance; the best option will depend on your individual circumstances.﻿﻿

1. Level term, or level-premium, policies

These provide coverage for a specified period ranging from 10 to 30 years. Both the death benefit and premium are fixed. Because actuaries must account for the increasing costs of insurance over the life of the policy's effectiveness, the premium is comparatively higher than yearly renewable term life insurance.

2. Yearly renewable term (YRT) Policies

Yearly renewable term (YRT) policies have no specified term, but can be renewed each year without providing evidence of insurability. The premiums change from year to year; as the insured person ages, the premiums increase. Although there is no specified term, premiums can become prohibitively expensive as individuals age, making the policy an unattractive choice for many.

3. Decreasing term policies

These policies have a death benefit that declines each year, according to a predetermined schedule. The policyholder pays a fixed, level premium for the duration of the policy. Decreasing term policies are often used in concert with a mortgage to match the coverage with the declining principal of the home loan.

Once you've picked the policy that's right for you, remember to research the firms you're considering thoroughly to ensure you'll get the best term life insurance available.

Benefits of Term Life Insurance

Term life insurance is attractive to young people with children. Parents may obtain large amounts of coverage for reasonably low costs. Upon the death of a parent, the significant benefit can replace lost income.

These policies are also well-suited for people who temporarily need specific amounts of life insurance. For example, the policyholder may calculate that by the time the policy expires, their survivors will no longer need extra financial protection or will have accumulated enough liquid assets to self-insure.

Term Life Insurance vs. Permanent Insurance

The main differences between a term life insurance policy and a permanent insurance policy, such as universal life insurance, are the duration of the policy, the accumulation of a cash value, and the cost.﻿﻿ The right choice for you will depend on your needs; here are some things to consider.

Cost of premiums

Term life policies are ideal for people who want substantial coverage at low costs. Whole life customers pay more in premiums for less coverage but have the security of knowing they are protected for life.

While many buyers favor the affordability of term life, paying premiums for an extended period and having no benefit after the term's expiration is an unattractive feature. Upon renewal, term life insurance premiums increase with age and may become cost-prohibitive over time. In fact, renewal term life premiums may be more expensive than permanent life insurance premiums would have been at the issue of the original term life policy.

Availability of coverage

Unless a term policy has guaranteed renewable policy, the company could refuse to renew coverage at the end of a policy's term if the policyholder developed a serious illness. Permanent insurance provides coverage for life, as long as premiums are paid.

Investment value

Some customers prefer permanent life insurance because the policies can have an investment or savings vehicle. A portion of each premium payment is allocated to the cash value, which may have a growth guarantee. Some plans pay dividends, which can be paid out or kept on deposit within the policy. Over time, the cash value growth may be sufficient to pay the premiums on the policy. There are also several unique tax benefits, such as tax-deferred cash value growth and tax-free access to the cash portion.

Financial advisors warn that the growth rate of a policy with cash value is often paltry compared to other financial instruments, such as mutual funds and exchange-traded funds (ETFs). Also, substantial administrative fees often cut into the rate of return. Hence, the common phrase "buy term and invest the difference." However, the performance is steady and tax-advantaged, a benefit in time when the stock market is volatile.

Other factors

Apparently, there is no one-size-fits-all answer to the term versus permanent insurance debate. Other factors to consider include:

Is the rate of return earned on investments sufficiently attractive?

Does the permanent policy have a loan provision and other features?

Does the policyholder have or intend to have a business that requires insurance coverage?

Will life insurance play a role in tax-sheltering a sizable estate?

Term Life Insurance vs. Convertible Term Life Insurance

Convertible term life insurance is a term life policy that includes a conversion rider. The rider guarantees the right to convert an in-force term policy-or one about to expire-to a permanent plan without going through underwriting or proving insurability. The conversion rider should allow you to convert to any permanent policy the insurance company offers with no restrictions.

The primary features of the rider are maintaining the original health rating of the term policy upon conversion, even if you later have health issues or become uninsurable, and deciding when and how much of the coverage to convert. The basis for the premium of the new permanent policy is your age at conversion.

Of course, overall premiums will increase significantly, since whole life insurance is more expensive than term life insurance. The advantage is the guaranteed approval without a medical exam. Medical conditions that develop during the term life period cannot adjust premiums upward. However, if you want to add additional riders to the new policy, such as a long-term care rider, the company may require limited or full underwriting.

Frequently Asked Questions

What is term life insurance?

Among insurance policies, term life insurance guarantees payment of a stated death benefit if the policyholder dies within the stated term period. Term periods may last anywhere from a year to 30 years. Importantly, term life insurance policies do not possess monetary or savings value unless the holder dies within the term. However, term life insurance may be less costly than other life insurance options, such as whole life insurance.

What is the difference between term life and whole life insurance?

Term life insurance occurs over a predetermined period of time, typically between 10 and 30 years. Term policies may be renewed after they end, with premiums recalculated according to the holder's age, life expectancy, and health. By contrast, whole life insurance covers the entire life of the holder. Unlike a term life policy, whole life insurance includes a savings component, where the cash value of the contract accumulates for the holder. Here, the holder can withdraw or borrow against the savings portion of their policy, where it can serve as a source of equity.

Do you get your money back at the end of a term life insurance policy?

The holder will not have their money returned once a term life insurance policy expires if they outlive the policy. Meanwhile, whole life insurance premiums may cost ten times more by comparison. This is because the risk to the insurer is much lower with term life policies. For instance, a term life insurance policy may follow the given structure, where a healthy 45 year old holder pays fixed monthly premiums of $60 for 20 years, with a $500,000 death benefit payout.

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Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to terminate.

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A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death.
Link: https://www.fidelity.com/life-insurance/life-insurance-planning/what-is-life-insurance

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A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death.

Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance generally provides protection for a set period of time, while permanent insurance, such as whole and universal life, provides lifetime coverage. It's important to note that death benefits from all types of life insurance are generally income tax-free. ¹

There are many varieties of life insurance. Some of the more common types are discussed below.

Term life insurance

Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. With traditional term insurance, the premium payment amount stays the same for the coverage period you select. After that period, policies may offer continued coverage, usually at a substantially higher premium payment rate. Term life insurance is generally less expensive than permanent life insurance.

Needs it helps meet: Term life insurance proceeds can be used to replace lost potential income during working years. This can provide a safety net for your beneficiaries and can also help ensure the family's financial goals will still be met-goals like paying off a mortgage, keeping a business running, and paying for college.

It's important to note that, although term life can be used to replace lost potential income, life insurance benefits are paid at one time in a lump sum, not in regular payments like paychecks.

Universal life insurance

Universal life insurance is a type of permanent life insurance designed to provide lifetime coverage. Unlike whole life insurance, universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime. Additionally, due to its lifetime coverage, universal life typically has higher premium payments than term.

Needs it helps meet: Universal life insurance is most often used as part of a flexible estate planning strategy to help preserve wealth to be transferred to beneficiaries. Another common use is long term income replacement, where the need extends beyond working years. Some universal life insurance product designs focus on providing both death benefit coverage and building cash value while others focus on providing guaranteed death benefit coverage.

Whole life insurance

Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has higher premium payments than term life. Policy premium payments are typically fixed, and, unlike term, whole life has a cash value, which functions as a savings component and may accumulate tax-deferred over time.

Needs it helps meet: Whole life can be used as an estate planning tool to help preserve the wealth you plan to transfer to your beneficiaries.

How cost is determined

Insurers use rate classes, or risk-related categories, to determine your premium payments; these categories don't, however, affect the length or amount of coverage.

Your rate class is determined by a number of factors, including overall health, family medical history and your lifestyle. Tobacco use, for example, would increase risk and, therefore cause your premium payment to be higher than that of someone who doesn't use tobacco.

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A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. Typically, life insurance is chosen based on the needs and goals of the owner.