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Insurance Planning

Insurance Basics

Why life insurance?

Life insurance is the foundation of financial security for you and your family. Life insurance helps to ensure that your family and loved ones are protected against financial difficulties in the event of a premature death. Combined with investments and retirement and estate planning, life insurance is a fundamental part of a sound financial plan.

The concept of life insurance is simple: You pay regular premiums over the term of the policy and if you die before the term ends, the insurance company pays a specified amount of money — called the death benefit — to your beneficiaries. There are two primary types of life insurance: term and cash value.

Term Life (pure protection)

Term life is the simplest type of life insurance. It provides death benefit coverage for a specific period of time (“term”), generally ranging from one to 30 years. Since term insurance offers no savings plan, all of your premium payments are applied to the cost of the insurance. If you die at any point before the term expires, your beneficiaries receive the policy's death benefit. The death benefit is usually free from federal income tax.

You can add optional features to your term life policy.

  • Many term life policies are renewable, which enables you to begin another term of coverage without taking a medical exam (important if your health has deteriorated since you purchased coverage).
  • Some are also convertible, which means you can convert your term life policy into an equivalent cash value policy from the same carrier.

Cash Value Life (term insurance plus a savings account)

Cash value insurance combines term life insurance with a tax-deferred savings plan. One of the most straightforward cash value policies is whole life.

Whole life is permanent insurance protection that protects you for as long as you live (from the day you purchase the policy until you die, as long as you pay the premiums). Whole life insurance is also known as “limited pay life,” “life paid up at 65,” “endowment life” and “ordinary life.”

With cash value life insurance, the face amount of your policy and your premium remain the same throughout your lifetime. Part of your premium — about the same as an equivalent term life premium — pays for your life insurance. The rest, less management charges, goes into a cash value savings account.

In reference to general account obligations and guarantees, the ability for the insurance company to meet these obligations to policyholders are subject to sufficient capital, liquidity, cash flow and other resources of the insurance company.