When it comes to life insurance, most people know that there are two basic types – term insurance, which lasts for a specific number of years, and permanent insurance, which (when structured properly) lasts a lifetime. However, one of my favorite questions to ask advisors, as well as clients, is “How many types of permanent insurance are there?” Most people get this wrong.
What’s your guess?
The correct answer is four. Universal Life, Whole Life, Indexed Universal Life and Variable Life are all types of permanent insurance. What’s the difference between them? The simplest way to understand how permanent life insurance policies differ is to imagine that every time you pay a premium, the insurer divides your premium into two buckets. The money in one bucket is used to pay the insurer’s expenses. The money in the second bucket is invested. The “recipe” used for the investments is dictated by the type of policy. The investment performance might be tied to interest rates, dividends, indexed funds or other investment options.
It’s important to understand the different types of permanent insurance before making a purchase. The insured’s goals, budget and risk tolerance need to be considered. Each type has advantages and disadvantages.
If you would like more information on the four types of insurance and how to incorporate them in an effective insurance plan, please email me at email@example.com for a copy of our educational white paper.
Already bought permanent insurance? We offer complimentary reviews of your existing insurance policies. Please contact me at 917-612-9813 or firstname.lastname@example.org if you would like a review.