What are the Types of Life Insurance available for nurses?
As you may or may not know, there are two main types of life insurance policies, term and permanent, but there are variations on those two types.
Though they all serve a purpose in the life insurance planning process, the variances of each of those policies have stark contrasts to one another.
Their differences are touched on below:
Term Life Insurance
- Meant for a temporary need
- Premiums start out extremely affordable, but then increase significantly after as the insured grows older and are typically referred to as annually renewable term, or some variation thereof)
- Does not have an associated cash value
- Death benefit remains level throughout the duration of the term period, and though premiums contractually increase as one nears life expectancy, the death benefit remains at the same amount over the life of the policy
Whole Life Insurance
- Death benefit increases over time, assuming the policy is what’s known as participating, i.e., is eligible to receive dividends.Though they are not guaranteed, most mutual insurance carriers allow their whole life contracts to be eligible for dividends on an annual basis.Dividends are subject to approval by each respective company’s Board of Directors annually.
- Provides a cash value element that is guaranteed to increase over time and is not subject to interest-rate risk or market fluctuation
- Provides the lowest death benefit relative to premium being paid, but does increase as premiums are paid over time
- Base premiums start out very high, relative to face amount applied for, but are guaranteed to remain the same over the life of the contract (some riders may increase in cost over time)
Universal Life Insurance
Meant for a permanent need
- Premiums are able to be flexible in nature. Additional premium may be necessary as an insured gets older
- Death benefit may be guaranteed with a secondary guaranteed coverage rider
- Is interest-rate sensitive and performs better with a favorable interest-rate market
- Typically has a guaranteed minimum interest rate, but may be illustrated at a higher, hypothetical rate that is not contractually guaranteed
- Provides a cash value element in a general account that may increase over time and of which can be borrowed or withdrawn from income tax-free
- Death benefit may increase over time or remain level, depending on carrier guidelines and applicable options that are selected by policy owner
- Carries surrender charges, which is a penalty for terminating the policy in the early stages of the contract
Variations of Universal Life
Variable Universal Life
Variable Universal Life policies provide permanent death benefit protection and are long term investment vehicles with potential cash value accumulation.
Has underlying investment options, also known as separate accounts where cash value is based on the movement of the market.
Equity Indexed Universal Life
The cash value growth is based on the S&P 500 with certain parameters.
Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.
The total dividend calculation includes mortality experience and expense management as well as investment results.
For a whole life policy that is not a Modified Endowment Contract (MEC), if the amount of dividend payments used to repay the loan principal or interest exceeds the cost basis (cumulative premiums) of the policy, the excess dividend payments may be subject to income taxes.
All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company.
Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.
Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
Waiver of Premium and Waiver of Specified Amount will incur an additional premium.
Riders may incur an additional cost or premium. Rider benefits may not be available in all states.
Written By Jason Frederico, CreativeNurse Team member in Las Vegas This material contains the current opinions of the Jason Frederico but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
2016-32401 Exp. 10/17