Get a Life Insurance Quote — It Only Takes a Few Minutes
The Life Rate Quote Will Take 5-10 Minutes
The quotes generated by this program are not a contract, binder, or agreement to extend life insurance coverage and are based on the listed factors and the applicable underwriting criteria for the rate shown. The exact premium can only be determined after an underwriting review and may be different or the policy may not be available. Please contact a State Farm® agent for further details. Coverages quoted are not FDIC insured, not State Farm Bank guaranteed and may lose value. Life insurance issued by State Farm Life Insurance Company (Not licensed in MA, NY, or WI), State Farm Life and Accident Assurance Company (Licensed in NY and WI), Home Offices: Bloomington, Illinois.
If life is what happens when you’re busy making other plans, then life insurance is there for when those things don’t go as planned. This commonly misunderstood type of insurance provides payment to your beneficiaries upon your untimely death.
One of the most common reasons people obtain life insurance is to provide for their children and/or dependents, but if you have loans, mortgage payments, credit card debt or other financial burdens that would be passed on to your loved ones in the event something were to happen to you, life insurance can take care of these debts for you and relieve your family of the financial responsibility. Sometimes people simply don’t want their loved ones to have to worry about funeral expenses, so life insurance policies are there to cover this financial concern.
More information on what’s involved in obtaining life insurance in Canada
Step 1: Compare quotes
The first step to securing life insurance is to obtain a quote by filling out our simple online form. Whether you are a single person looking for life insurance coverage or a couple looking for joint coverage, our life insurance comparison engine will help point you in the right direction. The process only takes a few minutes to complete and you will be provided with a range of quotes that best meet your life insurance needs. Life insurance policies tend to last either your entire lifetime or a set period of years, so comparing life insurance quotes helps to ensure you’re locking in the best rate now and in the future.
Step 2: Connect to a life insurance expert
Once you have a quote, the next step in the process is to speak to a licensed expert to ensure the coverage you’ve selected meets your needs. There are a number of personal and health related questions that you will want to discuss with a licensed insurance broker or agent before moving ahead with your life insurance policy. InsuranceHotline.com takes care of this step for you by connecting you with a life insurance expert who will walk through the entire process with you to make sure you get the right coverage at the right price.
Step 3: The medical exam
One of the things that sometimes deters people from obtaining life insurance coverage is the medical exam. This standard part of the process is not as worrisome as you might believe and takes on average just half an hour. The life insurance company you select will send a representative to your home to ask you a few questions and complete a brief medical exam. This typically includes checking your blood pressure, weighing you, drawing a blood sample and/or collecting a urine sample. This representative is a medical professional, typically a nurse.
The medical exam is crucial to determining your risk profile and identifying any underlying medical conditions. Since life insurance policies are often for life, the insurance company wants to ensure you’re healthy enough for them to feel confident insuring you for the duration of your policy. This isn’t anything to worry about. Just be honest on your application and don’t worry unnecessarily about this part of the process.
Step 4: Finalize your quote
After your medical exam, your samples will be sent to a lab and the results forwarded to your life insurance company. From here, you will either be approved at the rate of the quote you were originally given, the quote may be adjusted to factor in any health issues that came to light, or in some cases you may be denied coverage. If this happens, you can begin the process again with another company if you choose. Each company is different and some have a wider range of conditions they accept than others.
Determine what your life insurance needs are
If you are looking for life insurance in Canada, the first step is to evaluate and understand what your needs actually are. Life insurance benefits can vary greatly depending on what type of coverage and protection you are looking for. Based on the options you select, a life insurance policy can provide for wide variety of benefits to protect your family in the event of your death, to pay off mortgages, debts, or other related expenses.
Going through our online quoting process will help give you a baseline idea about the types of coverage offered in Canada, and what you should be thinking about when you apply for a life insurance policy. After we provide you with an online quote, the licensed life insurance broker or agent we put you in touch with will be sure to help answer any questions or concerns that you might have before finalizing your quote.
Life insurance is your financial safety net
Life insurance can help your family maintain the lifestyle they’ve grown to love and provide longer-lasting financial security. Your family can use it to help pay for funeral expenses, housing costs, medical bills not covered by health insurance, children’s college, debts and just about anything else they may need.
Simply put: life insurance can remove many of your financial worries. Just get a life insurance quote today, check these worries off your list and your family could be better protected.
Life insurance rates are more affordable than you might think
Life insurance rates start at $14 per month.*
Coverage options start at $50,000 and go all the way up to $1 million. The younger and healthier you are, the more affordable your rates can be.
What is life insurance and how it works
A life insurance policy works similarly to any other type of insurance policy. You determine how much coverage you need, how long you need it and then you make your payments (called premiums). You typically can choose to pay monthly, annually or quarterly for 10, 20, 30 years or over your lifetime to maintain the coverage. When you die, if your policy is still active, the people you’ve listed on your policy (called your beneficiaries) get paid the death benefit. In most cases, this payment is paid in one lump sum.
Getting a quote for life insurance is easy — here’s how.
It doesn’t have to be complicated and requires no commitment. All you need is a minute or two.
When it comes to life insurance it’s a common assumption that choosing a product, by its very nature, is complicated or overwhelming. This sentiment came across in our findings when we surveyed 1000 parents without life insurance, with a number of mums and dads believing that taking out a life insurance policy would be complicated and time-consuming. In fact, this was the third most-cited reason parents gave us for not taking out a policy.*
However, taking out a policy can be pretty easy. For instance, our online quote system can get you a life insurance quote in under 2 minutes and you’ll get an instant online decision if you decide to apply. You can even save your progress and return to it later on.
So you just need a couple of minutes, some very basic, general information about yourself and access to our quote system.
What’s the point of a quote? It’s a quick and easy way to get an idea of what your premiums may look like, depending on:
- The kind of life insurance you want (life insurance or decreasing life insurance)
- Who you’d like to cover (just yourself or a partner too)
- And the amount of cover you’d like
- Or how much can comfortably afford (with the minimum monthly premium being just £6 per month).
You’ll also be asked for:
- Your date of birth
- How long you’d want the cover to last
- And if you smoke (or have smoked in the past 12 months).
If you’re unsure about the type of life insurance you may need, or what you want the policy to cover, clicking on the question mark icons may help answer your questions.
Once you request the quote, you’ll be given the option of adding critical illness cover to the quote or not. Again, a clear explanation of critical illness cover is provided. You’ll also be asked whether you’d like to pay your premium monthly or annually for a discount of up to 4%.
That’s it. You’ll have your quote summary. Should you want to explore a few options, you can edit your quote as well. You also have the option to go ahead and apply for a policy there and then, or call us and ask further questions.
At this stage, you are not required to give any contact details. While you’re invited to give an email address and phone number, you don’t have to. Simple as.
If from here, you want to apply for life insurance, you can do so online by filling in a form or calling us. This is, of course, a more detailed process, but even so, completing the application will usually take less than 30 minutes.
Level term life insurance
There are a number of reasons why people take out Level Term Life Insurance; if you have debts that would need to be paid off in the event of your death, if you don’t think your dependants would be able to cope financially if you died or to provide money for events that you wish to happen after your death, such as your children’s schooling. This could also include financial support for your children’s futures, for example house purchase deposits.
If you have a mortgage and would like your dependants to be able to pay off the outstanding capital if you died, level term insurance may be suitable. Many people in such circumstances will also consider Mortgage Protection Life Insurance (which is also often referred to as decreasing term life insurance).
Mortgage protection life insurance
As the name implies, mortgage protection life insurance is designed to pay off your outstanding repayment mortgage in the event of your death. This means that in the event of a claim, your dependants will receive a lump sum intended to pay off your mortgage in its entirety, ensuring that your loved ones won’t have to worry about losing their home in addition to losing you.
If you have a repayment mortgage the amount of the outstanding mortgage decreases over time. In a similar way with a mortgage protection life insurance policy, the amount of life cover the policy provides decreases in line with the outstanding balance of your repayment mortgage.
How to Choose a Life Insurance Policy
When deciding on the right life insurance policy for you, it may be worth taking into consideration the amount of money you would need to leave behind in order to protect your loved ones, should anything happen to you. This sum should take into account their financial situation, as well as any outstanding debts you may have, such as a mortgage.
Mortgage Protection Life Insurance may be a good option to consider if you’re looking for a policy to pay off a repayment mortgage after your death. You select the cover and term to match your mortgage debt. With this policy, as your mortgage decreases the level of cover will decrease over the term. This can be a cheaper option because the cover reduces and typically this type of policy only covers your mortgage repayments and not any other debts you may have, such as credit card debts or bank loans. This policy could be right for you if want to ensure that your partner will not lose their home as a result of your passing.
Level Term Life Insurance provides a fixed level of cover, defined by you, for the policy term — so premiums tend to be higher. You may want to consider this option if you have dependents who may struggle without your income, such as children or a partner. This kind of policy may help those left behind with any outstanding debts and mortgage repayments. You could use a level term policy to leave a little extra behind to cover future expenses like university fees or holidays and even cover the cost of your funeral.
Our guide on How To Choose Life Insurance can assist when you are looking to select a suitable type of policy for your circumstances.
Calculating Life Insurance Cover Costs
People often ask How Are Life Insurance Costs Calculated? Your life insurance premium is dictated by the amount of cover that you require, the number of years your policy will run for, the type of policy that you decide to take out and various personal factors.
These factors can include your age, general health, medical history, lifestyle, the regularity that you travel to foreign countries (where health risks may be higher), and the level of danger that your hobbies or job may expose you to. The financial needs of your dependants — such as existing debts, school fees, mortgage and reliance on your take-home pay — can all help you determine a level of cover suitable for your situation.
Writing a Life Insurance Policy in Trust
Should your life insurance policy be written in trust, the policy proceeds can often be directly paid to your chosen beneficiaries within just a few days of a claim being raised. Writing a policy in trust may also help avoid a payment being liable for inheritance tax if it’s above the threshold set by HMRC.
When a policy is not written in trust, the proceeds will count as a part of your estate, so they will also have to go through probate which could be more time-consuming.
If you have any questions about policies, such as information about when your employer provides life insurance, or how the time of death within the term of a mortgage protection life insurance policy can affect pay out, please consult our Life Insurance Guides, where you’ll discover information you may find useful.
3 Tips When Shopping For Affordable Life Insurance Quotes Online
When it comes to shopping for life insurance, many people are going online to find affordable rates. Why? Because shopping online for life insurance is an easy and convenient way to compare quotes without having to drive around town or spend hours on the phone with an agent or call center. And if the price is too high or if you don’t like the coverage, you can simply move on to another insurance company’s website with a click of your mouse.
Be smarter about shopping for affordable life insurance quotes online and consider these three tips before you start gathering quotes or deciding on a policy.
Tip #1: Know how much you need.
Many people may be jumping on the computer and plugging in round numbers without asking themselves, “ How much life insurance do I need?” Resist the urge to go shopping until you do the math. Otherwise, you might end up with an inexpensive policy that doesn’t pay out enough to cover the needs of your loved ones.
For an estimate on how much you might need, begin by using a life insurance calculator to get you started. Keep in mind these calculators are only an estimated assessment, and for a more detailed analysis you should consult with a financial advisor or licensed insurance professional.
Tip #2: Know what policy options are available.
Many life insurance policies offer various options that can be purchased at an additional cost. These “add-ons” include policy riders or endorsements that can greatly enhance your coverage.
For example, some policy riders will allow you to purchase more insurance at a future date without a medical exam. Others, such as an accelerated death benefit rider, will allow you to use your life policy’s death benefit for medical bills in the event you are stricken with a terminal illness. Be sure to research what options you can include in your quote, and whether or not they are right for you.
Tip #3: Get quotes from a reputable company.
A great quote from a company with a less-than-healthy financial history isn’t necessarily a good deal. Imagine paying on a life insurance policy for years and then, when you or your loved ones need it the most, finding that the company doesn’t have the funds to pay your claim.
Get quotes from companies that have been around for a while. Look around on their websites and read a bit more about the company and how long it has been in business, and check on its insurance company rating.
Universal life insurance is a permanent life insurance policy that is similar to whole life in that it mixes a savings vehicle along with lifelong (hence “permanent”) coverage. If the premiums are paid as required, the policy will not expire and death benefits will be paid out to the beneficiary. Typically universal life provides more flexibility in premiums and a “cash value” that mimics a whole life policy on the surface. Universal life policies were created to provide more flexibility to the customer’s need that other permanent policies do not provide for. The savings, premiums, and death benefit can be changed based on the overall need of the customer as the policyholder’s situation changes.
The cash value inside an universal life insurance policy can be tied to a money market account, a major stock index, or be invested into equity funds and bond funds depending on the type of universal life product you purchase. Once a policy is purchased, the company creates a minimum interest crediting rate per the amount stated in the contract. If the portfolio earns more than expected, the additional amount is credited to your account up to the cap rate. It is for this reason why universal life insurance policies can accumulate more than whole life policies
One major advantage to the cash account inside these types of policies is that the cash value can be used to pay premiums on the policy after a certain point if there is enough fund in the account to pay for the continual cost of insurance unlike whole life which automatically takes out loans against the cash value in the event of a non-payment of premium. Premiums inside a universal life policy are split between two different areas: the savings element and the cost of insurance. In order for the coverage to remain in force, the cost of insurance must be paid through premium payment, or (if there is enough fund built up inside the cash account) a reduction of the cash value. As long as the cost of insurance is paid, the contracted coverage is guaranteed to stay in effect.
Uses For Universal Life Insurance
For the most part, the use of universal life insurance parallels with other forms of life insurance as a financial protection and income replacement vehicle in the event of death. In the insurance world you will see universal life insurance being used more in advanced estate planning after other tax-free/tax deferred options (like 401ks, IRAs, etc…) have been maxed out and customers are seeking ways to maximize their money in a tax deferred way to help minimize current tax obligations that can’t be gained using other forms of investment vehicles.
How The Death Benefit Works
When it comes to the death benefit, basically you have two options: Level or Increasing.
With the level death benefit, the amount the policy pays out stays level throughout the life of the policy and pays out the death benefit or the cash value, whichever is greater. With an increasing death benefit, both the cash value and death benefit increase over time and are both paid out as part of the death benefit.
Which is better? That all depends on your end goals and best discussed with a licensed insurance agent like one of our True Blue personal shoppers.
How the Cash Value Works Inside Universal Life Insurance
While both are permanent insurance policies, the difference between whole life and universal rests largely on the cash value accumulation process. With universal life, the insurance company sets a minimum interest rate based on the contracted agreement in the policy sold (usually a low 2-3%). From there, if there is a gain on the overall portfolio of the insurance company, the universal life polices get the excess added to their cash value account up to the max percentage amount listed in the contract. If it does not have a gain or it takes a loss, the insurer is still obligated to pay out the minimum interest based on the contracted rate (if any).
The cash value built up inside the policy can either have loans placed against it without tax implications or you can withdraw part of the cash value, which may be subject to additional taxes. Always check with your financial advisor on potential pitfalls there may be withdrawing any funds from a cash value policy.
Comparing Universal Life Rates
From here, you can see that not all companies are competitive in their pricing for life insurance. While Sagicor and American National are pretty close (both great companies), the State Farm policy is twice as expensive as the 5star policy providing the same basic coverage. This is why it is strongly encouraged to not buy life insurance from someone who only works for one company and talk to an independent agent who works with dozens of companies to find you the best price, like a True Blue personal shopper.
Term Life Insurance vs. Universal Life Insurance
Universal life insurance is best understood as a “hybrid” of both term life insurance and permanent life insurance, taking the best of both and adding in some unique features. The major difference between the two is that universal life is meant to protect you for your entire life where term is designed for a predetermined period. Also, term life insurance doesn’t have a cash value feature and if the policy is cancelled, then nothing is returned to you unlike with a permanent policy.
Universal life insurance uses the same calculations as a term life insurance policy to establish premium, but instead averages the premiums for coverage to age 100 and charges you that price for the coverage, which is why you pay more for this type of protection vs. term life insurance.
Whole Life Insurance vs. Universal Life Insurance
The major difference between universal life insurance and whole life is the overall flexibility of the premiums. As stated before, universal life insurance allows you to flex your premium payments as needed as long as the cost of insurance in covered; whereas, whole life does not afford you that option.
Both types allow for tax deferment of the cash value account and allow for loans against the cash value; however, whole does not provide you the ability to increase or decrease the death benefit as you financial needs change throughout life. While both policies offer the ability to skip premium payments, in theory (and never advised), a whole life policy creates a loan against your cash value that must be paid back plus interest. With a universal life policy, the skipped premium is simply deducted from the cash value aspect of the policy.
Interest in between these two policies act differently as well. In a universal life policy, the interest is adjusted monthly allowing for faster growth of the cash value account; whereas, in a whole life policy the interest is calculated on a yearly basis and the cash value is slower to see increases because of this.
Term life insurance is a simple and straightforward policy that is intended for a specific period of time and has no cash-value component. Many refer to term life insurance as pure life insurance, because of its focused goal of providing a death benefit for amount chosen if the insured passes within the term of the policy.
A term policy has lower monthly premiums than its permanent life insurance counterparts but is not intended to last a lifetime as those policies do.
Some choose to renew their policies on an annual basis but most choose guaranteed level term life insurance, which is where you a select coverage for a certain time period in increments of five years up to 30 years.
For parents, they may choose to have coverage until their children become adults — or for those who are married without children, they may choose to have coverage until the remaining spouse is eligible for retirement benefits.
Term life insurance works well for those who want a basic and affordable plan to provide coverage for a certain time period. The biggest downside is if they want to renew and extend the plan for another time period, they will have to reapply, take a medical exam and pay a higher rate since they will be older than when they bought their previous policy.
Common reasons to buy term life insurance include buying a home, getting married, starting a family, and starting a business. Term policies are a no-risk solution to either debt that has a time limit, like a 30-year mortgage, or for other financial obligations with a time limit, such as providing for children until they are on their own.
What Is “Return Of Premium” Term Life Insurance?
Some insurers offer what’s called return of premium term life insurance. This option, when available, includes a provision which returns 10 percent of the premiums paid if the insured person does not pass during the insured term. With a standard term life insurance policy, any premiums paid will not be returned if the insured person does not pass during the insured term. In exchange for a higher premium than a standard term life insurance policy for the same amount and term, a Return Of Premium term life insurance policy will refund the premiums you’ve paid after the term has expired.
Customers buying a term policy to cover a mortgage obligation may find Return Of Premium term life insurance to be particularly appealing. When purchasing a policy for a 20 or 30 year term to cover a mortgage or refinance loan, if the insured person does not pass away during that term, the lump sum paid back can be used toward any remaining debt on the mortgage. In this case, the Return Of Premium term life insurance policy is acting as both life insurance and as a savings account, albeit with no interest.
A whole life insurance policy works best for someone who can afford the higher premiums and wants a guaranteed death benefit for their family members or estate no matter how long they live.
Whole life insurance is generally regarded as the safest type of permanent life insurance because the investment element that helps grow cash value isn’t subject to the fluctuations found in other types of permanent life insurance. Additionally, the cost of insurance is fixed and based on life expectancy, so there aren’t any spikes in the cost of insurance and there won’t be any expensive surprises as you and your policy age.
In the earlier years of a whole life policy, when you are younger, your premiums may be higher than with a term life policy for the same amount of coverage. However, over the course of a lifetime, whole life insurance is a less expensive option than renewing or rewriting a term policy again and again.
Some companies offer the option to purchase a whole life policy that’s paid in full after a certain number of years. Using this strategy offers the opportunity to pay for your life insurance needs when younger and earning money in the workforce, removing the burden of maintaining life policy premiums during retirement. You might pay into a policy for 10 or 20 years — and then never have to pay a premium again. This strategy is popular among some parents buying policies for their young children or for young adults.
Another option available from some insurers is a whole life insurance policy that’s paid in full at age 65. At age 65, you might be retired and living off a fixed income or drawing from your investments. The added cost of a life insurance premium is likely an unwelcome expense at that point. In some cases, policies can even lapse when money gets tight or other unexpected expenses occur. Buying a policy that’s paid in full at your retirement age loads your life insurance costs into your earlier years, so the annual premium cost will be higher than a whole life policy with payments spread over an entire lifetime. However, at age 65, that expense is no longer a concern and you still have a policy in place for the death benefit amount you’ve chosen.
A relatively simple type of permanent life insurance is final expense insurance. As its name suggests, final expense insurance is designed to pay for final expenses. These expenses might include burial and funeral costs and any lingering medical expenses.
Typically, final expense policies are for lower coverage amounts of $10,000 – $25,000. Because of their lower coverage amounts for the death benefit and simplified underwriting, these policies tend to have a lower premium than some other life insurance types. Many insurers place restrictions on a final expense life insurance policy which require the insured to be at least 50 years of age and many policies are not available for buyers over 85 years or age. Premiums are higher for older applicants, assuming the same amount of coverage.
Final expense insurance is often sold without an exam. However, applicants must answer a series of questions regarding their health. Some applicants may be ineligible due to pre-existing health conditions or age.
Some Policies Have A Graded Benefit.
Many types of final expense policies require what is called a “graded benefit“, which means there is a period of time in the beginning of the coverage where you are partially insured. This type of coverage usually means that the death benefit doesn’t apply for the first two to three years if the death is caused by something non-accidental (like a health condition) and instead you will receive a return of premium plus a percentage. This helps insurance companies reduce absorbing risk due to their lax underwriting on these policies. If you were to die from accidental causes, generally most policies will pay out the full face amount of the death benefit (less any loans against the policy). Consult with your agent prior to purchasing a final expense policy to see if this applies.
Universal life insurance is another type of permanent life insurance. It is similar to whole life in that it has a cash value component to it and earns a fixed amount of interest each year. However, the difference is that it gives the insured some flexibility in making changes to the premium amount and the beneficiary’s death benefit. This is because with universal life insurance, the death benefit, expense element, and the cash value element are broken out so there is more flexibility for the insured.
For example, the insured can set up their policy to have a different death benefit amount for different stages of life such as selecting a higher cash payout when children are younger and a lower amount when they are of adult age.
Another example, maybe one year the insured gets a big bonus and wants to defer the money so he pays double premiums that year — so the following year when his annual income is lower, he decides to use the money in that account to pay the premiums that year. However, the insured needs to make sure they are paying enough into their cash-value account so it will have value at the end. Some can also set it up so that their beneficiaries will receive the death payout as well as the cash value of the policy.
Universal Life Can Be Complex
Universal life insurance is a hybrid, a mix of whole life insurance and term life insurance. If you were to look inside a universal life insurance policy, the cost of insurance element is actually an annually renewable term life policy. The cash value component comes from investments, which may include low interest bearing accounts, options that track a stock index, or direct investments in mutual funds. Because the term life insurance component inside the universal life insurance policy is annually renewable, universal life insurance is considered permanent insurance.
The cost of insurance for the renewable term element inside a universal life insurance policy can be high in later years, but some companies reduce the cost of insurance by paying the death benefit to beneficiaries over an extended period of 30 years. The unpaid funds are held in an account that pays a low interest rate to the beneficiary of about 1 percent. Whatever amount the insurance company is able to make with the money during the extended payment period helps to offset the reduced premium they’ve charged for cost of insurance. A death benefit in the first year of about 3 percent of the total death benefit may not be enough to meet the immediate needs of your family or beneficiaries, so consider your true needs before choosing this option.
Due to their more complex structure and the investment element, some universal life policies introduce the risk that a policy may be underfunded and will require higher premiums. Many companies have removed this risk with the introduction of universal life products that guarantee modest returns.
The investment element of a universal life insurance policy often allows consumers to purchase a higher death benefit amount for less than a traditional whole life policy because the investment return is contributing to the policy’s cash value.
Some universal life policies are now indexed against the S&P or other stock indexes which, over time, may approximate a return in line with that index. The risk is that stock markets and their indexes don’t go straight up. Sometimes, equity markets and stock indexes fall in value.
While certain types of life insurance, like indexed and variable universal life insurance, may have investment qualities, it’s often safer not to think of life insurance as an investment, but rather to think of life insurance as — life insurance, a way to provide for your family or beneficiary.
Life insurance variants that feature an investment element present another possible route to reach the goal of providing income replacement for your beneficiaries.
Universal life insurance types, including indexed universal life and variable universal life, are annually renewable term policies that can build cash value through various investment strategies.
Indexed Universal Life Insurance And The Stock Market Index
An indexed universal life insurance policy buys an option on the market, or a chosen market index, rather than investing directly in the market through mutual funds. This option allows the policy to make money when the chosen market index is up, and to stay flat when the market is flat or down.
Because the life policy is invested through an option rather than direct investing, no dividends are earned through dividend paying stocks in the market, reducing investment performance below that of direct investments. Experts estimate the return from dividends on investments adds about 2 percent to the total return, meaning if the historical rate of return was 8 percent, an option that does not include returns from dividends may return 6 percent on average over the same given time period.
An indexed universal life insurance policy has a cap which limits your upside earnings within the policy, but also provides a floor to protect you from losses. In a down year for the chosen index, the policy gains through the investments will be flat.
Recurring losses that leave gains flat in a universal life policy can cause the policy to be underfunded, which means a higher premium may need to be paid to keep the policy in force.
Even in years when returns for your index universal life policy are flat, you still have expenses, fees, and cost of insurance billed to the policy, so in a flat year the indexed universal life policy can lose cash value.
Consider the following:
- In 2008, the S&P lost 37 percent of its value. Indexed universal funds would be flat in this year.
- In 2009 the S&P was up 26 percent, but the gain on an indexed universal life insurance policy would have been capped at 12 to 14 percent.
- In 2010, the S&P 500 gain of 15 percent would have also been capped.
- The following year, in 2011, the S&P gain of just over 2 percent is essentially flat.
Using real-world examples, you can begin to see actual performance may vary from illustrations. Indexes don’t go up by a fixed percentage each year, instead returns fluctuate.
A couple of years of low or no returns may be offset by later years with much larger returns with traditional investing through mutual funds or index funds, but those banner years are cut down to size in an indexed universal life policy as a trade off for protecting your downside with a flat return on down years.
Variable universal life is much like universal life but instead of the cash value amount being invested in a safe low-interest-bearing account or utilizing an index option, a variable universal life policy is invested in higher risk opportunities like mutual funds or stock funds.
With a variable life policy, the insured has potential to make more money in their cash value account because of the potential higher returns but conversely, if the stocks do poorly, the person could lose more in their account. This policy is good for the consumer who wants lifetime coverage and is willing to take a chance with higher risk investments for the potential higher dividends to their cash-value account.
A variable universal policy brings many of the benefits of other universal life types, including flexible premiums, and includes an annually renewable term life element to provide permanent life insurance.
Variable universal life insurance gets its name because returns can vary or even be negative, which means your policy could lose value. Investment-driven universal life products have their selling points which can attract consumers, primarily the opportunity to build a larger cash value. However, these types of policies can also introduce risk to your life insurance strategy.
Fees for variable universal life policies can be high, with some companies charging as much as 4 percent or more upfront for premiums paid. Some also charge a contract fee up $100 per year or more. Add another 0.5 percent for an admin fee each year. Expenses for investment management can add 1 percent to the already growing list of fees for a variable universal life insurance policy. Without a cap on gains, years with high growth on investments can help to tame these fees.
Variable Life Insurance Can Have Additional Costs
As an annually renewable term life policy, the cost of insurance component will rise each year because the risk of passing is higher as we grow older. Cash value can pay for the increased cost of insurance when returns are insufficient to fund the increased cost. If the cash value is depleted, an increasing annual premium must be paid to keep the policy alive.
For younger life insurance buyers, the annual increase in cost of insurance is likely to be relatively small and may be easily offset by investment gains. However, the cost of insurance chart takes a sharp uphill slant when viewed over time. The cost of insurance in later years can be extremely high relative to earlier years and those costs can jump at percentages much higher than any historical returns in stock market indexes, so building cash value is imperative in order to avoid higher premiums.
When you’re considering a universal life insurance policy, an insurer may present an illustration showing a return based on averages to demonstrate the possible growth of the cash value in the policy. An illustration is not a guarantee. What illustrations can’t show is the effect of a flat year or, with a variable universal life policy, a down year. In effect, either of these scenarios have the potential to break the performance model if not offset by sufficient gains in other years.
Unlike an indexed universal life insurance policy, a variable universal life insurance policy isn’t capped for gains, but instead of giving you a floor at zero return for a down year, a down year is a true loss. Great years in your invested funds work to build your cash value while losses diminish the cash value of the policy.
Long Story, Short – Summing Up The Life Insurance Conversation
- Permanent life insurance provides coverage for your whole life as opposed to a set limit, as found in term life insurance. Of the permanent life insurance options, a traditional whole life insurance policy builds cash value with the least risk, but it also misses potential growth opportunities available with universal life insurance types.
- Universal life insurances types, including indexed universal life and variable universal life, provide more flexibility in premiums and a greater opportunity. However, because gains are based on the performance of sometimes volatile markets, these policies come wit some risk which can lead to increased premiums if the underlying investments don’t match performance expectations.
- Term life insurance is temporary income protection, designed to match the time frames of your financial obligations. Because the policy is in force for a limited amount of time, such as 15 or 30 years for a mortgage, the premium costs are lower than for whole life insurance policies for the same dollar amount of coverage.
- The amount of life insurance you should buy depends on your individual needs. To determine a starting point, you can use the life insurance needs calculator.
- In most cases, life insurance purchased with after-tax dollars isn’t taxable to you or beneficiaries, with a few exceptions such as interest on installment payouts, some cash withdrawals, or policy surrenders.
- Some pre-existing medical conditions can make an applicant uninsurable. While underwriting guidelines vary by insurer, these conditions may include:
- ALS (Lou Gehrig’s Disease)
- AIDS or HIV
- Alzheimer’s/ Dementia
- Severe COPD or Emphysema
- Diabetes – Type I
- Cystic Fibrosis
- Cirrhosis of the Liver
- Invasive Cancer
- Kidney Failure Requiring Dialysis
- Huntington’s disease (HD)
- Other medical conditions such as a required organ transplant or if major surgery has been advised by a physician.
- Most life insurance policies will require an exam to properly rate the risk. No-exam policies may be available, but tend to have higher premiums.
- Be aware that there is a contestability period for life insurance claims. In most states, this means that the insurance company can contest or even deny a claim if you die within the two year contestability period and their investigation finds that you did not provide accurate information on your application. An insurer can deny the claim due to false information even if the cause of death was not related to the misinformation on the application.
Consumers should get at least a few life insurance quotes from different reputable life insurance companies because rates can vary depending on a number of factors. Each company may have a slightly different offering of life products, so ask questions regarding the different types of life insurance policies available.