Life Insurance

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Life Insurance

Your family is your legacy, securing their financial stability for a life without you is the greatest gift you can leave.

Here at Envision Insurance (located in Sterling Heights, Michigan) we have a team of highly trained, licensed insurance professionals ready to help with determining what life insurance policy is most appropriate for you and your family.

Listed below is a brief explanation of various types of life insurance policies to help you gain a better understanding of what your life insurance policy may cover. This list is not comprehensive and determining which policy is right for you and your family’s unique situation should be left to the experts. Call us today with your questions on which coverage is most appropriate for you and ask us for a free quote!

Basic Definitions:

Policyholder: the owner of the policy, the individual responsible for payments and the individual who makes decisions regarding the policy (such as taking out loans, surrendering the policy, etc.)

Insured: the person whose life is being insured

Beneficiary: the individual(s) that is/are paid the death benefit upon the death of the insured

Death Benefit: the coverage/payout amount of the life insurance policy that is paid to the beneficiary

 

Purchasing Life Insurance:

The process of purchasing a term/whole life policy includes the policyholder electing their desired death benefit amount and term length, if purchasing term life. An application is submitted to the insurance carrier and is accompanied with the results of a medical physical. Underwriters then review the application along with the results of the physical examination and may reference the policyholder’s medical records found with the Medical Information Bureau (MIB). A determination is then made by the underwriters to award coverage or decline the application.

 

Types of Life Insurance:
There are several types of life insurance to choose from and deciding which one is right for you and your family can seem to be a daunting task. Some of the most popular types are listed below:

  • Term Life
  • Convertible Term Life
  • Whole Life
  • Universal Life / Variable Life
  • Other Types:
    • Burial Insurance
    • No-Exam (Simplified-Issue) Life
    • Guaranteed Issue

 

Term Life Insurance

Term life insurance policies are a type of life insurance that define the policy period (timeframe) in which coverage is provided. Typically, the policy periods range from 10 years to 30 years.

Many policyholders tend to outlive their term life insurance policy and because there is no cash-value, those who do outlive their policy period do not collect any benefit; thus, the rates tend to be far cheaper than that of whole life insurance products.

Term life is a great option for individuals who want life insurance but may be on a tight budget or for individuals who have young dependents that one day will no longer be dependent on their income. For example, a newlywed couple who recently had their first child may consider a 30-year term policy to cover lost income of either or both spouses should they pass before their child becomes self-reliant and no longer dependent on their income.  

 

Convertible Term Life Insurance

Convertible term life insurance is a type of term life policy in which the carrier allows the policyholder to convert the term life policy into whole life insurance without additional underwriting or an additional medical review/physical. The carrier will often set a deadline as to when the policy can no longer be converted, this is usually set to two-years from the term end date.

Whole Life Insurance

Whole life insurance is a type of life insurance in which there is no defined policy period, that is, they are intended to be kept until the insured passes away; although some policies do have a maximum age of 120 years old. They are fully underwritten products that require a physical and a review of medical records from the MIB.

These policies build cash-value over time and can be surrendered when no longer needed. If the policy is surrendered the policyholder is able to “cash-in” the cash value of the policy and receive a lump sum. Once surrendered the policy ceases and coverage is no longer awarded to the insured and the beneficiaries lose their claim to the death benefit.  

The policy’s cash value can also be borrowed against, that is, a loan can be taken out against the accumulated cash value amount. However, this loan, like other loans, must be paid back with interest. If the insured passes away prior to the full repayment of the loan, then the loan amount plus interest is deducted from the death benefit awarded to the beneficiaries.

 
Universal / Variable Life Insurance

Universal life insurance policies are a type of whole life insurance that allows for flexible payments. Like a traditional whole life insurance policy, they build cash value and offer a death benefit to beneficiaries with no defined policy period (aside from the common maximum age of 120). Also, like traditional whole life policies, the policyholder can take a loan against the cash value that must be repaid with interest. These types of policies are designed for individuals who find comfort in the ability to miss some payments and not have their policy cancel.

Target premiums, which are predetermined, scheduled payment amounts and dates, are established and outlined in the ledger of the policy. If these payments are missed, the would-be payments are deducted from the policy’s cash value. If enough payments are missed the policy’s cash value will become exhausted and the policyholder would be required to make much larger payment amounts in order to have the policy remain active or otherwise be terminated. As such, policyholders of universal life insurance policies should be aware of and constantly monitor their policy to ensure that they are on pace with their target premiums relative to their policy’s cash value, as outlined in the policy’s ledger.

Variable life insurance policies are also a type of whole life insurance. These polices have cash-values much the same way traditional whole life policies do, however, the separate accounts in which they are tied to participate fully in financial market indices (i.e. S&P 500, Dow Jones, Nasdaq, Russell 2000, etc.). Granted they fully participate in these markets if the corresponding market is trending down in a bear market, the cash-value as well as the death benefit could decrease to a zero value. Conversely, if the separate account indices are trending up in a bull market the policy cash value can increase without a cap. As such, it is important to understand that these types of life insurance policies are designed for policyholders that are not risk averse and have aggressive investment strategies.

Other Types:

    • Burial Insurance is a type of whole life insurance policy that is intended to cover the cost of burial / funeral / final expenses. It offers no cash-value and no option to take a loan against. A physical is often still required. Policy death benefits are typically between $5,000 and $20,000.

 

    • No-Exam (Simplified-Issue) Life are either term life or whole life insurance policies (typically term life) that do not require a physical / medical examination. Underwriting reviews the applications for these policies and references MIB, however, in order to make a determination if coverage is awarded.

 

    • Guaranteed Issue are either term life or whole life insurance policies that will not be declined due to medical reasons, hence the name “guaranteed issue.” Granted these policies cannot be declined for medical reasons, they’re far more expensive than traditionally underwritten life products.

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