What type of insurance is the best?
There are two main types of insurance and insurance can be used to solve many problems from
simple mortgage insurance, income replacement in the event of death and many estate
A good life insurance advisor will ask many questions to determine what type of life insurance is
best for your situation. Life insurance is not a ‘one size fits all’.
A brief description of the types of life insurance follows.
There are two types of permanent life insurance coverage: whole life and universal life.
Whole Life provides life coverage and a savings component. The savings portion is called
cash value and builds over time with each premium payment. If you cancel your policy, you are
entitled to the cash value. You can borrow against the cash value in the form of a policy loan.
Advantages of Whole Life: Policy never expires; premiums are level; guaranteed to pay out;
cash values grow tax-free; cash value is protected from creditors; cash value can be used as
Disadvantages of Whole Life: Higher premiums comparable to term insurance in early years;
investment return on cash value may be lower than if you invested yourself.
Universal Life combines life insurance coverage with the option to invest in a portfolio of
investments. If you cancel your policy you are entitled to the investment savings.
Advantage of Universal Life: Policy never expires, premiums are level; guaranteed to pay out;
investment grows tax deferred, investments protected from creditors
Disadvantage: Premiums higher initially, if investments are not performing well you may have to
pay an extra premium to cover the cost of insurance
Universal life policies are very flexible. As the policy owner, you can vary the frequency and amount
of premium payments and also increase or decrease the amount of the insurance to suit changes in
For example, if your financial situation improves significantly, you can increase your premiums and
build up the cash value more rapidly. On the other hand, if you find yourself under a financial strain,
you can reduce your premiums, or you may even be able to deduct premium payments from the
cash value of the policy. Of course, changing the premium or withdrawing part of the cash value in
your policy will affect the rate at which your cash value accumulates. It may also reduce the size of
the death benefit.
It is possible to structure many universal life policies so that the invested cash value will eventually
cover the premiums. You would then have full life insurance coverage without having to pay any
additional premiums, as long as the cash-value account balance remains sufficient to pay for the
pure cost of insurance and any other expenses and charges.
Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value
and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the
policy terminates before the death of the insured. Additional out-of-pocket payments may be needed
if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a
loan, or if current charges increase. Guarantees are contingent on the financial strength and claims-
paying ability of the issuing company.
The cost and availability of life insurance depend on factors such as age, health, and the type and
amount of insurance purchased. As with most financial decisions, there are expenses associated
with the purchase of life insurance. Policies commonly have mortality and expense charges. In
addition, if a policy is surrendered prematurely, there may be surrender charges and income tax
Temporary Life Insurance
Term Insurance this type of policy expires after a set term; 10 year, 20 year or 30 year term.
There is no investment component and no cash value.
Advantages of Term: lower premiums
Disadvantages of Term: expires at end of term; no investment or tax sheltering; premiums
increase substantially at renewal
Not sure you have the right policy for your needs? Contact firstname.lastname@example.org for an unbiased review.