DO YOU KNOW WHAT LIFE INSURANCE CHASSIS YOU OWN? The 5 “clubs” of life insurance

Life insurance is a risk management vehicle. It can be designed and used for multiple purposes. If used properly it can provide tax free benefits, and it can protect families and businesses from untimely passing of key family and business members.

The basic chassis of life insurance is term insurance. It is the cheapest and most cost effective for specific durations of time. Term insurance can be purchased to cover a 10, 15, 20, 25, 30, 35 and 40-year duration and can be designed to go to age 100 guaranteed. Think of this type of  contract as a guaranteed term/perm policy.

With a term policy there is no equity buildup of cash, you are paying a premium based on your mortality table calculation at your current age and health. This is a perfect product for someone who needs to protect their income for a specific period of time.

Cash value policies are term chassis where you make an additional premium payment to over fund the policy to create a cash account.  These types of policies are often times referred to as “permanent” policies.

Whole Life is like a wood driver, designed to go the greatest distance
Think of whole life insurance as a bilateral contract where you agree to make required payments on time and the insurance company  makes certain guarantees to you in exchange.
Whole life cash value grows from annually declared company dividends that are not guaranteed.

Universal Life is like irons, can be designed for short, medium and long ball shots.
Think of universal life as a unilateral contract where you don’t guarantee to make all required payments on time and the insurance doesn’t guarantee that policy will last or perform as illustrated. Universal life cash value grows from company declared annual interest rate that are not guaranteed. This type of policy is less expensive than whole life policies because it offers less guarantees.

Index Life is like a pitching wedge with upside and controlled downside
Think of index life as a unilateral contract where the additional money you invest over and above the cost of insurance is invested in an investment pool and grows via a complex formula as explained in an illustration. Index life generally has a floor of zero percent to a capped percent via formula outlined in illustration. This type of policy allows you the opportunity to participate in potential upsides of investments with zero downside. This type of policy can be less or more expensive based on performance.

Variable Life is like a wood driver with a big head, the ball can go far or it can go into the water
Think of variable life as a unilateral contract where you can fund, overfund, under fund and skip payments. The downside is that if your policy is not designed, funded and managed properly, your policy may collapse with no cash value and no death benefit when you pass away. This type of policy has the greatest upside and downside and therefore carries the most potential risk.

Term Life is like a putter for short shots but can be extended into longer shots
Term life is designed to cover you from Point A to Point B. It is designed to cover a specific risk for a specific period of time for a specific guaranteed premium. It is a risk you hope you don’t win. Your goal is to find the best contract from the best company for the least amount of money. Many term contracts come with guaranteed conversion options for an additional premium. Get the right upgrade up front if you need it.