Beyond Basics — Your Life Insurance Choices
Most people have a pretty good idea of what life insurance is. You pay premiums to an insurance company and the company pays a benefit to your beneficiary upon your death.
It’s a fairly straightforward arrangement that has provided security to countless families and businesses for well over a century. So why do so many people find the discussion of insurance to be so complicated?
While the basic definition of life insurance is easy to understand, there are many different products on the market that can provide the insurance you need. Think of it as eating in a restaurant. Any restaurant can give you the food you need to live, but each cook will prepare the food and present it differently.
Term vs. Permanent
Life insurance comes in two basic forms — term insurance and permanent insurance. Both types of insurance do exactly as their names imply: term insurance provides coverage for a specific period of time (the “term” of the policy), while permanent insurance provides protection permanently (as long as the policy remains in force).
When affordability is an issue, term insurance can provide a viable solution to help meet your protection needs. And some term policies can be converted to permanent insurance down the road. One of the major benefits of permanent insurance is that it accumulates cash value over the years. The growth is tax-deferred and can be borrowed against or withdrawn to help fund almost any need.1
What’s on the Menu?
Like the food in any fine restaurant, permanent insurance comes in several different varieties: whole life, universal life and variable universal life. Each has its own strengths, and you can choose which is right for you based on your personal style, taste and need.
The oldest — and most conservative — form of permanent life insurance is whole life. Whole life is popular because it offers the most guarantees. With whole life, your premium payment remains level for the life of the policy, so you always know what your costs will be. Your only responsibility is to pay your premiums.
In addition, participating whole life, — whole life insurance purchased from a mutual life insurance company — offers the opportunity to earn dividends2 as declared by the insurer. Whole life also offers cash value that accumulates tax-deferred, and which can be borrowed against,1 as needed.
Universal life has many similarities to whole life, with some added built-in flexibility. There is no fixed premium to pay with a universal life policy. This flexible premium gives you the ability to fund the policy in a variety of ways. You can adjust your scheduled premium payments to meet your changing needs, provided that your premiums are sufficient to keep the policy in force. You also have the ability to increase or decrease your policy’s death benefit, depending on your needs. Your agent can help you determine the death benefit you need, and establish a premium payment schedule that will work for you.
With this flexibility, however, comes additional responsibility for the policyholder. When a premium is paid into a universal life policy, that money is, in effect, deposited into a cash value account. Each month, the monthly deduction charges, including the Cost of Insurance (COI), are deducted from this account. However, if there is not enough cash value in the account to pay the monthly deduction charges, the policy will lapse. It is your responsibility to ensure you pay enough premium to keep a universal life policy in force.
Like whole life, the cash value of a universal life policy accumulates tax-deferred. Unlike whole life, universal life has an interest rate that can vary — but the interest rate will never drop below the guaranteed minimum stated in the policy. The rate can be linked to either the investment experience of the insurance company or a market index, and will change periodically.
Variable Universal Life3
Variable universal life (VUL)* is another type of permanent insurance, and is similar to universal life. VUL is a flexible premium, permanent life insurance policy that allows you to have premium dollars allocated to a variety of investment options, including a fixed account. The policy generally provides an income tax-free death benefit, has a cash value that grows tax-deferred, and is accessible through policy loans and/or withdrawals. 1
This money can be used to supplement retirement income, pay for a child’s education, or meet a variety of other financial goals. The policy allows for the increase or decrease of coverage to meet your changing needs. You also have the option to guarantee the death benefit with the Guaranteed Minimum Death Benefit Rider. Overall, VUL can be a good option for people who want to combine life insurance protection with a higher potential for investment return — at a higher risk, of course.
Which Do You Choose?
Few people would walk into a fine restaurant and order without asking the waiter for suggestions. You should be even more careful when buying an insurance policy that you intend to have for the rest of your life. Your New York Life agent can help determine which product is best suited to your unique objectives and financial goals.
New York Life: The Company You Keep®
No matter what type of life insurance you purchase, you want that product to be backed by a strong financial services leader, one that will still be thriving 10, 20, 30 years from now — and beyond. That's why it's essential to choose an insurer with superior financial strength.
Since 1845, New York Life Insurance Company, the parent company of New York Life Insurance and Annuity Corporation (NYLIAC), has been providing quality insurance products to individuals, families and businesses. For more than 160 years, we have conducted our business around the central values of financial strength, integrity and humanity — and have remained committed to being a mutual company, owned solely by our policyholders.
This means that, regardless of the economy, our focus is fixed on just one objective: meeting the needs of our customers, now and far into the future. Talk to your New York Life agent or NYLIFE Securities financial services professional today and find out why New York Life is The Company You Keep®.
1 Policy loans accrue interest at the current rate. Loans and withdrawals reduce the death benefit and cash value by the amount of the outstanding loan plus interest or the amount of the withdrawal.
2 Dividends are based on the policy's applicable dividend scale, which is neither guaranteed nor an estimate of future performance. Although dividends cannot be guaranteed, New York Life has paid annual dividends to policyholders for 153 successive years. * For more complete information, please request the appropriate product and fund prospectuses from your NYLIFE Securities Registered Representative. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. Both the product prospectus and the underlying fund prospectuses contain this and other information about the product and underlying investment options. Please read the prospectuses carefully before investing.
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