Term Insurance (Pure Life Insurance)
Term insurance provides a death benefit for a specific period ranging from 5, 10, 20, or 30 years. If you pass away during your policy’s coverage period, your designated beneficiary receives the death benefit. If you live past the term period, the coverage ends with no death benefit. Unlike other types of insurance, term does not have a cash value associated with it.
Typically, with level term (see explanation below), the premium will remain the same throughout the life of the policy. However, if you choose to renew term, you should expect to see higher premiums as you age.
There are generally two types of term life insurance:
- Level Term: both the premium and death benefit remain the same for the life of the policy term.
- Annual Renewable Term: the death benefit stays the same for the entire term, but the contract must be renewed annually, typically resulting in a premium increase, which can add up over time.
Advantages
When electing a term life policy, you have the option to elect the amount of coverage you need, whether it be for 10 years, 20 years, and so on.
Disadvantages
Term life does not accumulate a cash value throughout the life of the policy. Since there is a specific term established, it can be difficult, or more costly, to extend the coverage should you need to.
Traditional Whole Life (Fixed Premiums)
Whole life is a type of permanent life insurance, which lasts throughout your lifetime and generally guarantees protection for your loved ones. Whole life insurance can offer fixed premiums, cash value accumulation, and protection until the day you die. Since whole life is designed to last your lifetime, it has higher premiums than term insurance.
The cash value is guaranteed and is held in the insurance company’s general portfolio—you do not select how it is invested. It grows on a tax-deferred basis, which means that the gain on these funds will not be taxed until or unless they are withdrawn.
Advantages
Traditional whole life insurance is very clear cut—your premium, interest rate, and death benefit are generally guaranteed for the life of the policy. The cash value grows tax-deferred and usually permits loans or withdrawals.
Disadvantages
Compared to term and universal life policies, whole life is often more expensive due to the guarantees associated with it. Also keep in mind that the policy is less flexible: changing your death benefit or premiums isn’t an option.
Universal Life (Flexibility)
Universal life is another type of permanent life insurance. Like whole life, it also provides a death benefit and cash value component. While the cash value is held in the insurance carrier’s general portfolio, universal life is more flexible because you can choose, within guidelines, how much and when to pay your premiums. Reducing or increasing premiums can potentially impact the cash value and possibly the death benefit.
Advantages
Universal life provides more flexibility than a term life policy. A universal life policy holds a cash value, so you may have the opportunity to end your premium payments if the cash value will cover the cost of the insurance. You may also have the option to decrease or increase the death benefit, or borrow against the cash value tax free.
Disadvantages
Because it provides permanent coverage, it is typically more expensive than term life.
Variable Life* (Investment Selection)
Variable life is a type of permanent life insurance. Like whole and universal, variable life also has a death benefit and cash value component. However, with variable life, the cash value is invested into subaccounts and you choose how they are invested. Variable life requires a fixed annual premium for the life of the policy and, in some cases, may provide a minimum death benefit.
Advantages
The cash value has the potential to grow based on how the sub-accounts perform.
Disadvantages
Investing the cash value of the policy creates exposure to risk, as the subaccounts may be impacted by the ups and downs of the markets.
Variable Universal Life* (Maximum Flexibility)
Variable universal life combines the investment selection associated with variable life and the flexibility associated with universal life into one insurance policy. You decide, within guidelines, how much and how frequently you pay premiums, as well as how you would like to invest the cash value in subaccounts. As with the other types of permanent insurance, variable universal life has a death benefit and cash value component.
Advantages
As long as premium payments are kept up with, the minimum death benefit is guaranteed. The cash value of the policy can be invested through a range of investment options, which has the potential to grow on a tax-deferred basis.
Disadvantages
Investing the cash value of the policy creates exposure to risk. If the market experiences a decline, for example, causing a drop in the account’s value, additional premiums may be required in order to keep the policy in effect.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
*Variable and variable universal life are offered by prospectus. The prospectus contains details about the investment objectives, risks, charges, and expenses. The prospectus should be read carefully and any questions should be addressed with your Financial Advisor before purchasing a variable or variable universal life policy.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
There are fees and charges associated with variable life insurance policies. Charges vary based on the circumstances of the insured life. Surrender charges vary by issue age, risk class and gender. Loans and partial withdrawals will decrease the death benefit and cash value and may be subject to policy limitations and income tax. All guarantees, including death benefits, are subject to the claims-paying ability of the issuing insurance company. An investment in variable life insurance involves risk, including possible loss of principal. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than the original investment. It is important to note that variable contracts may be variable whole life (the insurance company cannot change the internal expenses and the policy holder cannot change the death benefit) or variable universal life (offering a flexible premium, an adjustable death benefit, and allows the insurance company to change the internal expenses). Due to the variable sub-accounts, the insured is accepting additional risk in the variable life contract. All decisions regarding the legal or tax implications of your investments should be made in consultation with your independent legal and tax advisors. Not all insurance policies and types of coverage may be available in your state.
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