Michael S. Bullis

Financial Advisor

THE INS AND OUTS OF LIFE INSURANCE

If you’re just starting to look into life insurance,
the myriad of choices can be confusing.

by Michael S. Bullis

Man is Mortal. That makes life insurance a little unique and interesting, doesn’t it? We purchase things like health insurance, car insurance and home insurance, then hope we never have a need to use them. Life insurance is different, because it’s a widely accepted fact that sooner or later, each one of us will die.

So many choices. When it comes to life insurance, there are many options. You may have heard terms like ‘whole life insurance’, ‘term insurance’ or ‘variable insurance’ ’ but what does it all mean? And what are the differences? Well, first let me point out what they have in common: all life insurance policies provide payment to a beneficiary in the event of your death. Except for that basic tenet, the differences between policies can be major.

Whole life insurance. This type of insurance covers your entire life (not just a portion or a ‘term’ of it). Insurance companies tend to be cautious when selecting their investments, so the benefits could be lower than if you invested on your own. Whole life policies also tend to cost more than ‘term’ policies. This is both because they grow what is known as ‘cash value’, and because after a time you will be able to borrow against or withdraw from your whole life benefits.

Term insurance. Rather than covering your whole life, ‘term’ insurance covers a pre-determined portion of your life. If you die within that term, your beneficiaries receive a death benefit. If not, generally you get nothing. To put it simply, term insurance allows you to purchase more coverage for less money. Basically, you are betting on the probability of your death occurring within that specified ‘term’.

Variable life insurance. Variable life insurance is a permanent insurance. However, unlike whole life insurance, variable insurance allows you to invest the cash value of your policy in ‘subaccounts’ (which can include money market funds, bonds or stocks). Variable insurance offers a bit of control, as the value and benefit depend upon the performance of the subaccounts you select. However, that means there could be significant risk involved, since the performance of your subaccounts cannot be guaranteed.

Remember that the investment return and principal value of the variable sub-accounts will fluctuate. The cash value of a VUL policy, and perhaps the death benefit, will be determined by the performance of the chosen sub-accounts and is not guaranteed. Also, there may be additional fees and expenses associated with a VUL policy.

Universal life insurance. With universal insurance, it all comes down to flexibility. It is permanent life insurance that provides access to cash values that build up tax-deferred. You can choose the amount of coverage you feel is appropriate, and you retain the ability to increase or decrease that amount as needs change (subject to minimums and requirements). You also have some flexibility in determining how much of your premium is goes towards insurance, and how much is used within the policy’s investment element.

So, which is right for you? Many factors come into play when deciding what type of life insurance will best suit your needs. The best thing to do is speak with a trusted and qualified financial professional who can assist you in looking at all the factors and help you to choose the policy that will work best for you.

Michael S. Bullis is a Representative with First Allied Securitites, Inc. and may be reached at 1stalliedsecurities.com, 248-584-1400 or mbullis@rr.firstallied.com.

These views are those of the author and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Variable universal life insurance products are not insured by the FDIC, NCUA, or any regulatory agency. They are not deposits or obligations of, nor guaranteed by, any financial institution or any affiliated agency. All sales must be made only when preceded or accompanied by current prospectuses for the product and for the underlying portfolios. The prospectus contains information regarding risk considerations, charges, and expenses. This product is subject to investment risk, including possible loss of principal amount invested. Prospectuses may be obtained from your registered representative. Prospective policy owners should read the prospectus carefully before investing or sending money.