Life Insurance Comparisons

When considering life insurance comparisons, there are a great deal of differences from company to company. Getting a true feel for what’s out there requires shopping around and consulting with trusted insurance professionals. However the life insurance field in general can be looked at in terms of three basic products: term life, whole life and universal life; and two basic types of life insurance companies: “life-only” companies which specialize in life insurance and “multi-line” companies in which life insurance is only one of many products available.

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Term Life Insurance

Term life insurance is the oldest and least expensive form of life insurance. Its defining characteristic is the policy term, or the length of time it’s designed to be in force. In most cases these terms can be as short as one year or as long as 30, although some specialized policies are available in up to 50-year terms.

While its price is attractive, term life is a necessarily temporary life insurance option. Because of this and the fact it has no cash value mechanism, it is a good bet that the insured will outlive the policy term with nothing to show for it.

In recent years this issue has been addressed with a term life insurance rider, or amendment called return of premium (ROP). With an ROP policy, one pays premium into the policy just like any other term policy. However, if the insured outlives the term, he or she gets the entire premium back, dollar for dollar with no interest. ROP is more expensive than traditional term life, but it is less expensive than comparable permanent life insurance products.

Just about every life insurance carrier offers term life up to a 30-year product; however New York Life currently offers policy plans up to 50 years. The ROP option isn’t quite as prevalent as it was a few years ago, but it is still available from several carriers.

Whole Life Insurance

Whole life insurance is the basic permanent life insurance product. Unlike term life it is designed to remain in force for the life of the insured. The downside is whole life insurance policy premiums are significantly higher than for comparable term life products.

However, whole life features a cash value mechanism, which operates similar to a savings account and helps offset the cost of insurance as the insured grows older. Most companies allow the insured to take loans out of the cash value, but the insured should be aware that doing so may cause the policy to lapse if the loan isn’t repaid in a timely manner.

Because whole life insurance is so much more expensive, for most people it works best strictly for expenses that one does not expect to disappear later on, such as funeral expenses and probate-associated costs.

Universal Life Insurance

Developed in the 1970s universal life insurance – commonly known as UL – is a permanent life insurance product which combines the security of the cash value mechanism with the ability to make flexible payments. It can be a cost-effective option for those who want a permanent product but who do not want to deal with the inflexibility and relatively high cost of whole life.

While UL premiums don’t have to be paid level from month to month, and in some cases premiums can be skipped entirely, it is not without its risks. One needs to be careful with respect to how much premium is being paid into the policy. Pay too much and the policy may become a modified endowment contract, or MEC. A MEC is still a life insurance contract, but it has adverse tax consequences that other life insurance contracts lack. Once a UL becomes a MEC, it cannot be turned back into a UL.

If one pays too little into a UL policy, in time the cash value will eat away at itself and cause the policy to lapse.

A common form of the UL is the variable universal life policy, or VUL. The VUL uses a group of “separate accounts” similar to mutual funds to fund the cash value mechanism. These separate accounts can be conservative, aggressive or a mixture of both depending upon the insured’s suitability. A VUL can accrue cash value quicker than a fixed UL product, but it can also lose money and even lapse even with regular premium payments. As such the VUL requires more maintenance and attention than other life insurance products.

Many companies also offer a variable option on a whole life policy. Because of the investment-like nature of these policies, they can only be sold by agents who are both licensed by the state they operate in and who hold the relevant FINRA securities licenses. An agent with these licenses is known as a “registered representative.”

Comparison of Life Insurance Companies

Generally speaking, life insurance companies can be grouped into two categories. There are “life-only” life insurance companies that specialize in life products and only offer limited products in other lines of insurance, if they offer anything else at all. These companies include Mutual of Omaha, New York Life, Genworth and Northwestern Mutual. Agents for these companies tend to be life insurance specialists and are not as likely to be part of a “captive agency” force – or contractually obligated to exclusively represent one company or a particular group of companies – as agents with other companies.

The other group of life insurance companies is the “multi-line” group of companies. These are carriers who sell a wide variety of insurance products, including auto, home, commercial general liability and others. These companies consider their life insurance lines important, but they are as emphasized as they are with other companies. In addition agents with multi-line companies are much more likely to be part of a captive agency force, and will encourage potential clients to bundle their life insurance coverage with their home and auto insurance products. Often times doing so can get one discounts on life insurance premiums that may not be available with the companies who strongly emphasize life insurance.

Examples of multi-line companies include Allstate, State Farm, Farmers Insurance and the various Farm Bureau companies. MetLife and Prudential, which were both largely life-only companies at one time, have both in recent years moved closer to the multi-line business model.

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