the three life insurance options
term life insurance
Term life insurance provides coverage for a specific period of time, typically ranging from 1 to 30 years. If the policyholder dies during the term of the policy, the insurer pays a death benefit to the beneficiary. Term life insurance is often less expensive than other types of life insurance, but it does not accumulate cash value or offer investment options. Once the term ends, the policyholder can choose to renew the policy at a higher premium, convert it to a permanent life insurance policy, or let it expire.
Did You Know?
Some term life insurance offer living benefits. They are designed to provide an additional layer of protection for policyholders by allowing them to access a portion of the death benefit while they are still alive if they are diagnosed with a qualifying illness or injury.
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whole life
Whole life insurance, also known as permanent life insurance, provides coverage for the entirety of the policyholder’s life, as long as premiums are paid. Whole life insurance policies have a cash value component that grows over time, similar to a savings account. Policyholders can borrow against the cash value or surrender the policy for its cash value. Whole life insurance premiums are typically higher than term life insurance premiums, but the policy offers permanent coverage and a guaranteed death benefit.
Participating Whole Life
A participating whole life insurance policy is a type of permanent life insurance policy that pays out a death benefit to the policyholder’s beneficiaries upon their death. It also has a savings component, known as the cash value, which earns dividends from the insurance company’s profits. The word “participating” means that the policyholders are entitled to share in the company’s profit through these dividends. Policyholders may use the dividends to reduce the premiums, pay off policy loans, or increase the policy’s cash value.
Non-Participating Whole Life
Non-participating whole life insurance does not provide policyholders with the opportunity to earn dividends. Instead, the policyholder pays a fixed premium amount for the duration of the policy. The premium amount is determined by the insurance company and is based on the policyholder’s age, gender, health, and other factors.
Participating vs. Non-Participating
The key differences between the two types of policies are that participating whole life insurance policies have the potential to earn dividends and are therefore considered to be a more flexible policy option. Non-participating whole life insurance policies, on the other hand, are more straightforward, and the premiums are fixed, so policyholders know exactly what to expect. However, non-participating policies do not have the potential for earning dividends or sharing in the profits of the insurance company.
Universal life
Universal life insurance is a type of permanent life insurance that offers greater flexibility than whole life insurance. Policyholders can adjust the premium payments and death benefit as their financial needs change. Universal life insurance policies also have a cash value component that grows over time, and policyholders can borrow against or withdraw from the cash value.
There are three main types of universal life insurance:
Fixed Universal Life Insurance
This type of policy offers a fixed interest rate on the cash value component of the policy. The interest rate is usually set by the insurance company and remains fixed throughout the life of the policy.
Indexed Universal Life Insurance
This type of policy allows policyholders to allocate a portion of their premiums to an indexed account, which tracks the performance of a stock market index, such as the S&P 500. The policyholder can earn interest based on the performance of the index, subject to a cap and a floor.
Variable Universal Life
This type of policy allows policyholders to invest their premiums in a variety of investment options, such as stocks, bonds, and mutual funds. The policyholder assumes the investment risk, and the cash value of the policy can fluctuate depending on the performance of the investments.
If life insurance could talk…
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**This video is copyright of Primitus Inc.
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