There are 3 types of Life Insurance: 1) Whole Life Insurance (Participating and Non-Participating) 2) Universal Life Insurance (UL) 3) Term Life Insurance
On Whole Life Insurance, Policy Reserve is from the premium paid from the clients. The insurance company calculated premium in a way that the 20 years old will contribute more on the policy reserve than the age 50.
Cash Surrender Value (CSV) is zero in 8 to 10 years and it is hidden in the policy.
Two Premiums Paid Structure On Whole Life Insurance:
1) Pay the premium for life structure
2) Pay to 65 structure is shorten the perineum paid period, you will still have to pay for the whole premium in order not to pay at the age 65
The Whole Life Policy is generally expensive and the policy is not transparent.
Whole Life Policy come with Participating and Non-Participating Policy:
Whole Life (Non-Participate) – the insurance company is taking some of the premiums money, that you would be paying for life, investing in the company and you won’t get your dividends with the Whole Life Policy.
The policyholder is not going to be effective by the investment process (building the policy reserve) for the non-participating whole life policy. No dividends will be paid to the clients.
In Participating Whole Life Policy, you are participating that the insurance company is doing a good job managing their expenses, experiencing less mortality claims than expected, and the insurance company is doing very well on the investment, for that you would get dividends. The dividends may not be guaranteed.
Policy Dividends are not Stock Dividends. Stock dividends are when company is making money through the stock market and decided to give their clients dividends. Policy dividends is for overpaying premiums. It is not subject to dividends (gross up) tax credit. It can be a taxable event. It doesn’t create a taxable income for the policyholder (owner).
If you have dividends, what can you do with it (the 7 dividends options):
2) Savings – Dividends on deposit (T5 will be issued)
3) IVIC (Segregated Funds)
4) Term Insurance Additions
5) Special Term Additions – 1 year non-renewal Special Term Additions to increase the coverage, expired in one year, the clients would get it year after year to increase the coverage
6) Pay Up Addition (can be used to buy for the young child) – getting a mini participating whole life policy year after year to increase coverage and the premiums don’t go up, the CSV added up for collateral or policy loan
7) Reduce Premiums – Automatic Premium Loan
Universal Life Insurance (UL)
UL insurance combines permanent insurance with tax-advantaged investing, within limits. UL insurance is considered to be the most flexible type of life insurance, because the policyholder can modify the policy in various ways in the future.
The following factors can be changed:
1) Timing and amount of premiums;
2) Face amount (dead benefit);
3) Life/lives insured.
Premium Of UL – Some of the premium paid by the policyholder would go to the investment parts of the UL policy less premium tax.
Accumulation Fund – Investment growth is tax-free, providing it is less than the limits set out in the Income Tax Act (the MTAR rule). The excess fund can be moved to a side fund to continue the tax deferral event by meeting the MTAR rule. The earned income from the accumulation fund can be used to buy riders (paid-up additions (PUA)) rider to increase coverage.
The accumulation fund can be used to premium offsets. The policyholder can stop paying the premium while maintaining their policy in force (non-forfeiture benefits).
Child Coverage Rider
If the policyholder wants to obtain coverage for his children but he does not have a spouse (or does not want to obtain coverage for his spouse), he can add a child coverage rider to his individual insurance policy.
Like the family coverage rider, every child is automatically covered once they reach 15 days of age, without any increase in the premium, and coverage continues to a specific age, such as 21 or 25.
The amount of child coverage is limited or unlimited to the maximum specified by the rider. The death benefit can be used to offset the funeral or burial costs the policyholder may incur upon the child’s death, or for other purposes.
Accidental Death (AD) Rider
A life insurance policy with an accidental death (AD) rider will provide an extra benefit, over and above the regular death benefit, if the life insured dies as a result of an accident.
Depending on the insurance company, AD rider coverage may be offered in units (e.g., in multiples of $25,000, to a specified maximum), or it may be a multiple of the death benefit. The most common multiple is two times the death benefit, and as a result this rider is sometimes referred to as “double indemnity.”
An accidental death is one that occurs as a result of an unexpected violent or traumatic event. To qualify for the AD benefit, the death must occur within a fixed time after that event (e.g., one year). The AD rider typically excludes deaths resulting from suicide, self-inflicted injuries, war, or the commission of a crime.
Only deaths resulting from accidents are covered; deaths resulting from sudden illnesses are not. Sometimes it may be difficult to determine if the death was caused by an accident or natural causes; in this case a detailed autopsy and analysis of the circumstances leading to death would be required.
Guaranteed Insurability Benefit (GIB) Rider
A guaranteed insurability benefit (GIB) rider gives the policyholder the option to buy additional life insurance coverage in the future without providing proof of insurability. The premiums for the additional insurance will be based on the attained age of the life insured at the time of the addition, but will assume that his health remains the same.
A GIB rider is very useful for those who currently do not have a large insurance need, or who cannot currently afford a larger amount of insurance, but expect they will want to increase their coverage in the future. By adding a GIB rider to a term or permanent policy now, they are guaranteed the right to increase their coverage even if their health declines.
UL would be the best life insurance policy for its controllable investment features and transparency, but UL is expensive.
Term Life Insurance
Term insurance is common and simple. Term insurance is inexpensive. Clients buy it to cover up a debt. Clients buy it for the short term needs for insurance such as the need for a family would have. Mom and Dad are in their 20s or 30s. Kids are relatively young. We need a fair a bit of coverage for the next 20 to 30 years. We buy a large amount of term insurance to match that period. The clients would buy permanent insurance to go along with it. But the term insurance would fill the need for that period of time. If you are not looking for any investment, you don’t need any tax deferred growth. You have limited income. You have a short term need. Term insurance is often used.
Annual Renewability – is without having to provide the evidence of insurability maynot be ideal for most people due to the premium costs will increase every year. If the wages don’t increase that much every year, how would the clients handle the expensive cost for going into the Term Life Insurance? The client can purchase the 5 Years Annual Renewable Term Life Insurance.
If you have 20 years term mortgage for example, the 5 Years Annual Renewable Term Life Insurance would increase the premium cost 4 times during the 20 years term. In this case, we would recommend a 20 Years Annual Renewable Term Life Insurance to save you cost and to get the product that you would need.
The term coverage can be converted to the permanent coverage without any evidence of insurability in the later years.
Term insurance is plain and simple. There is no cash value associated to it. When you are paying for the premiums, you are paying the insurance company to undertake the risks. The insurance company would estimate your needs by using the mortality table. Then the insurance company would collect just enough premiums from the clients to make a little bit of profits and to pay off the death benefits during the time that the insurance company got their clients insured.
There are 3 structures of death benefits of the Term Life Insurance:
1) The Level Term Structure – the coverage would remain level throughout the term. If you are getting a $250K of coverage, that’s what you going to always have until the term life insurance is expired or converted.
2) The Increasing Term Structures – you may get a $150K of coverage this year, a $200K of coverage next years and $250K of coverage in the later year. The coverage can keep increasing or capped at the certain amount. The Increasing Term Structures would cover the increasing cost of living. Your premium cost would increase as well.
3) The Decreasing Term Structures – you buy a mortgage and the mortgage payment is decreasing over time; you get the decreasing term policy that the mortgage payment and the term policy is decreasing the same phase. Banks usually would be the one providing the decreasing term policy.
Not all insurance companies covered the all 3 structures of death benefits of the Term Life Insurance.
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