Life Insurance & Annuities

A universal life insurance option provides more flexibility than whole life insurance. Policyholders have the flexibility to adjust their premiums and death benefits. Universal life insurance premiums consist of two components: a cost of insurance (COI) amount, and a saving component, known as the cash value.

As the name implies, the cost of insurance is the minimum amount of a premium payment required to keep the policy active. It consists of several items rolled together into one payment. COI includes the charges for mortality, policy administration, and other directly associated expenses to keeping the policy in force. COI will vary by policy based on the policyholder’s age, insurability, and the insured risk amount. Collected premiums in excess of the cost of insurance accumulate within the cash value portion of the policy. Over time, the cost of insurance will increase as the insured ages, however, if sufficient, the accumulated cash value will cover the increases in the COI.

Term life insurance, also known as pure life insurance, is life insurance that guarantees payment of a stated death benefit 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 policy to terminate.

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. The policy’s purpose is to give insurance to individuals against the loss of life. This cash benefit may be used by beneficiaries to settle the policyholder’s healthcare and funeral costs, consumer debt, or mortgage debt among others. Term life insurance is not used for estate planning or charitable-giving purposes. All premiums cover the cost of underwriting insurance. As a result, term life premiums are typically lower than permanent life insurance premiums.

An annuity is a financial product that pays out a fixed stream of payments to an individual, and these financial products are primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals. Upon annuitization, the holding institution will issue a stream of payments at a later point in time.

The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.