Types of Life
Insurance

There are many diverse opinions on what type of insurance to purchase. Be sure to speak with a professional before making this important decision. Call 952-445-0888 ext. 19 for a complimentary portfolio review.

Term Life Insurance

This is the simplest and often the least expensive form of life insurance. Coverage is set for a certain amount of time, often from 1 to 30 years. A benefit will only be paid if the insured passes away during the term of coverage.

If the insured is alive at the end of the term, the policy usually simply expires. However, there are some policies that include a feature called “Return of Premium”. With these policies, if you are alive at the end of the term, you are refunded the total amount of the insurance premiums paid into the policy.

For example, say you get a $400,000 death benefit policy that costs $40 per month for 20 years. If you are alive after 20 years, years you have paid in $9,600 and that is returned to you.

“How can this work?” you may ask. Simple, without this option, the cost of the policy may only be $30 per month. The insurance company is simply using the extra $10 per month for 20 years and trying to earn more from its use.

This insurance can be a great tool for planning but does come with potential drawbacks. If you are not disciplined, and have not saved for your child or retirement during the years your insurance is in force, you may come to a time where the insurance has expired, and you are back at square one. But now another life insurance policy is prohibitively expensive. I strongly council people to make sure they establish a savings plan and have the discipline to follow it through good times and bad. Even if using the return of premium style from the previous example, getting a check in the mail for $9,600 at age 65 will not be a tremendous benefit for your retirement.

Whole Life

This type of policy is designed to provide coverage for an entire lifetime; which brings it under the category of permanent insurance. It is one of the oldest forms of life insurance and less complicated than some other types listed. When you make a premium payment, part of the payment goes to pay for the cost of the insurance, and another part of the funds goes to the cash value of the policy.

Advantages to this type of policy are Death benefits, cash value, and premiums are guaranteed for life. Another benefit is a whole life policy can act as a “forced’ savings plan. A disadvantage is because of these guarantees; a larger death benefit is often out of the budget for many young parents.

Universal Life (UL)

UL is another form of permanent insurance. However, unlike Whole Life, interest rates, premiums, and even the death benefit can be adjusted and changed. It is designed to give the insured the maximum amount of flexibility. The contracts often have designed minimum and maximum rules for premiums as well as minimum rates of interest the policy is guaranteed to accumulate at.

Variable Universal Life (VUL)

Another form of permanent insurance where coverage is also designed to last an entire lifetime. Instead of part of your premium earning interest, part of your premium is invested in various securities in the stock market or bond markets.

Second to Die Insurance

A type of insurance designed only to pay a death benefit after the death of a second person; normally the last living parent. Because of the decreased odds of both parents dying at any given time, the cost of this type of policy is usually considerably lower than if each parent bought an individual permanent insurance policy.

Insurance products and services offered through CUSO Financial Services Inc. (CFS) are not NCUA/NCUSIF Insured, Not credit union guaranteed and may lose value. South Metro Federal Credit Union (SMFCU) is affiliated with CFS. Representatives are employees of SMFCU and licensed through CFS.