Posted by What is whole life insurance and what is index universal life insurance?You must read before buying insurance. I hope this article provides you with the answers you want.
Families and individuals in the U.S.life insuranceIn the market, life insurance products are mainly divided into 5 types, which are as follows according to the time sequence of product launch:
- Term (Term Life Insurance)
- whole life(Savings dividend-type whole life insurance)
- Universal Life(Universal Insurance)/
- Guaranteed Universal Life(Protection type universal insurance) 202101 update
- Variable Universal Life (investment type universal insurance)
- Indexed Universal Life(Exponential universal insurance)
Basic model: Term (Term life insurance）
This type of life insurance emerged from around 1850 and continues to the present. It is the oldest life insurance and the prototype and benchmark for subsequent life insurance.
Term term life insurance prices and premiums
Term insurance,is trueAccidental deathThis situation,The cheapestGuarantee methods and products.
35-year-old who applied for $50Term insuranceFor insurance policies, the basic premium is usually around $60/month.
American Life Insurance Guide ©️ ProvidedOnline pricing tool for term life insuranceFor consumers to inquire and compare.
Advantages: The premium is cheap, in line with short-term benefits, and provides death claims.
Things to note:
- Time limit
- There is no cash value, no savings and investment functions.
- After the insurance contract expires, as the insured ages, the cost of renewal increases.
- Suitable for people who need short-term protection and a relatively limited budget.
Upgrade: Whole life (savings dividend-type whole life insurance)
The so-called whole life insurance, obviously, is the validity period of the insurance until the death of the insured.After paying the fixed insurance cost, the remaining part of the premium you paid is converted into cash value.Insurance companies will regularly pay dividends based on the company's profitability.Over time, the cash value in the insurance will increase.The insurance company promises a given rate of return. For example, the annual rate of return for the promised cash value is 3%-4%.Customers can use the cash value in the insurance policy, which is one of the benefits of this insurance.
It is called whole life insurance. In nature, customers of this kind of insurance generally need to pay insurance premiums for life, and sometimes they can use dividends to pay for insurance premiums.
Savings dividend-type life insurance insurance has been sold for more than 100 years in the history of the insurance industry. Some large insurance companies are the main products of this type of dividend-type whole life insurance. It is also a continuation of term life insurance and makes up for some of the shortcomings of term life insurance.
advantage:
- Death claims are guaranteed until the insured’s life or 100 years of age
- Cash value
- Provide tax incentives
- Premiums remain fixed
- Fixed dividend rate
Things to note:
- Relatively highest premium
- Compulsory guarantee
- Inflexible cash value
- When the market environment is good, the return on investment is relatively low
In view of this kind of life insurance, if you want to settle claims for life, you need to pay premiums for life (unless the accumulated dividends of the policy are enough to pay for your future premiums, you may stop paying) This is very inflexible under market competition, so insurance companies It has also launched an upgraded savings and dividend-type life insurance, which has become the mainstream of the dividend-type life insurance product category in the market today.
The characteristics of this type of insurance are:
1.The payment period is self-defined, and it is guaranteed that there is no need to pay after the payment period expires
This upgraded savings-participating life insurance is its customization and flexibility.The insurance company will negotiate your payment deadline for you based on your actual situation. When your payment period expires, you do not need to pay any more premiums.It is usually 10 years, and the payment period is 20 years.
This is different from the lengthy and uncertain payment period of traditional savings-participating life insurance. The payment period of upgraded savings-participating life insurance is clear, such as a 10-year payment. After you pay the 10th year, you don’t need to pay any more. Pay the fee.
2. Guaranteed lifetime claims
After you have paid your insurance, you don't need to pay any more, and you can enjoy life-long claims.
3. Cash value accumulation is faster than savings life insurance
Because it is a regular fixed payment, although the premium is higher than other types of insurance, its corresponding cumulative growth in cash value is faster than other similar types of life insurance.The interest on the cash value is calculated by compound interest, the more the principal, the higher the dividend.
Compared with the traditional savings and dividend life insurance, the upgraded savings and dividend life insurance is not difficult to see. The difference is that the former is paid in advance and more principal is invested. Under the fixed rate of return promised by the insurance company, the high principal will be relatively high. High expected return, but in essence, there is not much difference.
Learn more about the history and advantages and disadvantages of participating whole life insurance
New and more flexible product: Universal Life
Comprehensive life insurance/universal life insurance, the mainstream product in the 80s and 90s, is also the benchmark and core of mainstream products on the market today. As a wealth management and true savings product, its function is better than that of whole life. ) More comprehensive.
Universal insurance is similar to whole life insurance in that both are guaranteed for life.After paying the insurance cost, the premium will be invested in a separate account.The difference between the two is that the universal insurance policy is more flexible. The policy owner can pay at any time, and the cost can be more or less, but to achieve the lowest level of payment, the guaranteed universal insurance, the customer can choose how many years of payment After comparing the insurance policy, that is, how much money is put in, there is absolutely no need to pay any more premiums.
Most universal insurance has a cash value, that is, the cost of the payment plus the profit minus the insurance costs and charges, which is the cash value.The income of universal insurance is generally linked to the interest rate market.
advantage:
- More flexible premiums
- Has savings and tax deferred functions
- Cash value function
Things to note:
- Higher premiums than term life insurance
Learn more about the advantages, disadvantages and history of universal insurance products
All for protection: Guaranteed Universal Life (GUL)
The lifetime protection universal insurance is also developed by Universal Life (universal life insurance).The main purpose is to provide customers with protection. Although the cash value is provided, it is not based on growth. The cash value is mainly used to pay insurance premiums.Among all universal insurance products,GUL InsuranceIt is the only type of product that does not have the risk that the insurance policy will lapse due to lack of premium after paying the premium according to the agreed payment plan.
For example, if a customer buys a copyGUL Insurance, The insured amount is 100 million US dollars, the selected 10 years are paid in full, and the annual premium is 2 US dollars.So as long as the customer pays the premium normally, regardless of the market plummeting or skyrocketing, no matter when the insured person dies, his beneficiary will receive a death compensation of 100 million US dollars.
GUL Insurance ProductsThe purpose of is very clear: to provide lifetime protection.Combined with the functional characteristics of universal insurance,GUL InsuranceThe product is the cheapest lifetime guarantee product.At the same time, the US marketGUL Insurance ProductsThe price is more competitive than other countries and regions.
advantage:
- The price is much cheaper than Whole Life
- Guarantee for life
Things to note:
- The cash value function is like a chicken rib
- Single purpose function
Keep up with market interest rates: Variable Universal Life (investment universal insurance)
Investment-oriented universal insurance, evolved from Universal Life (universal life insurance), a very popular life insurance product from the 90s to 2000, combined the protection of Universal Life (universal life insurance) and the investment function of mutual funds, and some combined Universal Life (universal life insurance) and stock investment functions have realized the first real wealth management investment product in the insurance industry.
The key difference between investment universal insurance and Universal Life is that customers can choose to invest in different funds within the scope of funds provided by insurance companies to obtain corresponding investment returns. When the market goes up, there is no cap, and The income does not need to be taxed.But at the same time, there is no guarantee. If the cash account loses too much in the financial market, then the policyholder may need to add more cash to maintain the validity of the insurance.Therefore, the product here requires a relatively high level of investment from the client/broker.
Since it is an investment product linked to market returns, the handling fee will be shared equally between the insurance company and the investment company cooperating with the insurance company. Therefore, there may be a situation that even if the policy holder makes money, only a part of it Go back to the policy holder's policy.The three major falls in the stock market in history also occurred during the period when Variable Universal Life (investment-oriented universal insurance) was popular.As a result, many insurance policies were forced to liquidate their positions due to the huge market turmoil and failed to make timely margin calls, resulting in the invalidation of the policies.At that time, through market research, nearly 3% of Variable Universal Life (investment universal insurance) policies were invalidated, and Variable Universal Life (investment universal insurance), an insurance product, fell into a trough due to excessive risks and no protection.
advantage:
- High rate of return, linked to the market.
Things to note:
- High risk, no guarantee
- High handling fee
Investment-protected upgrade product: Indexed Universal Life (Indexed Universal Life)
Index universal insurance, or IUL for short, appeared around 1994.However, at that time, the stock market skyrocketed, and everyone was desperately focusing on mutual funds, the stock market and Variable Universal Life (investment-oriented universal insurance) for high returns. No one knew about this insurance product with protection functions.After the stock market crashed three times, investors and insurance applicants realized the importance of protection, so Indexed Universal Life (indexed universal insurance), which provides capital protection, has gradually become a mainstream product on the market.
Indexed Universal Life (indexed universal insurance) is also a variant of universal insurance, which can be linked to three major indexes: the US S&P 500, the Hong Kong Hang Seng Index, and the German 30DAX Index. Investment income is linked to the trend of these indexes, and the cash value is guaranteed. , Even if the index drops, the cash value can get a return of about 0%-2%.The data shows that the average annualized return of the US stock market in the past 20 years has been 7.5%, with 8% to 10% in most years.Relatively speaking, this level of return is better than the 3% to 4% return of only investing in bond market insurance products.In addition to the same income tax avoidance andInheritance taxIn addition to its functions, customers can also borrow money from the cash value at any time, and can get up to 80% of the cash value without paying taxes.
For this kind of insurance, some insurance companies have a variety of additional contracts to choose from, such as: disability reduction and exemption premiums, unemployment reduction and exemption premiums, long-term care, major and serious illnesses and other additional contracts.
advantage:
- Guaranteed capital, guaranteed income
- Maximum premium flexibility
- Has tax-free retirement functions
Things to note:
- The annual rate of return on investment is not clearly guaranteed
- Investment return is capped
Learn more about the advantages, disadvantages and history of exponential universal insurance
Summary
From the term life insurance in the 19th century to the dividend-sharing life insurance that allows years of stable savings, and now to the modern investment universal insurance product, life insurance products have been evolving and upgrading over the centuries, constantly improving the functions of the products themselves, and trying to To achieve the different needs of each customer.Even the same type of insurance products, under different company brands, have different choices and functional points. Customers need to cooperate with professionals to analyze and decide which life insurance product they need according to their own conditions and needs.
*Recommended reading:
01. 'Limra report: What life insurance do Americans buy?"
02. 'Introduction to American life insurance, price and premium comparison, advantages and disadvantages (latest edition)"
