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

 

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 InvestorWords.com