Insuring Your Wealth - Page 4 of 4

Insuring Your Wealth

and would guarantee death benefits of $1 million only if the man died before age 65. If the policy’s investments performed poorly or he died after age 65, the death benefit could be less than $1 million.

Snapshot No. 3: Whole Life
Raiford priced a $1 million whole life policy for a healthy 40-year-old man in New York. A whole life policy would cost about $14,000 a year. However, the death benefit would be $1 million (minus any loans taken against the policy) whenever the man dies.

Know Your Options: The pros and cons of various life insurances types
Whole Life Insurance
This is the oldest kind of cash value life insurance, meaning it combines a death benefit with a savings component. It provides coverage over an individual’s whole life, as opposed to a specified time. Premiums — the price of an insurance policy, typically charged annually or semiannually — are fixed, so they remain level throughout the policy’s lifetime. The insurance company makes all investment decisions.

  • Most basic form of cash value life insurance
  • Less risky
  • Fixed death benefit
  • Costly
  • Requires less participation
  • Popular among those closer to retirement age

Variable Life Insurance
This type of policy combines a death benefit with a savings account that can be invested at the policyholder’s discretion. Like whole life insurance, it offers fixed premiums.

  • More investment options
  • Investment risk assumed
  • No fixed return
  • Potential for high returns
  • Death benefit determined by investment performance
  • Less expensive
  • Requires active participation
  • Popular among 30- to 45-year-olds

Other types of insurance include:
Term Insurance: This option covers the insured person for a certain period of time — the “term” — specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period, which can be one, five, 10, or even 20 years. Term life policies are renewable, but premiums increase with age.

Universal Life Insurance: This type of policy also combines a death benefit with a type of savings vehicle. However, premiums are flexible and death benefits can be changed during the life of the policy, within limits.
Source: Insurance Information Institute and