There are several different forms of life insurance and several options that can be added to each policy; the below is a generalization of the most common forms:
Whole Life- Whole life is a policy that will follow you throughout your entire life. These policies can be taken out in different face value amounts, and they are made to follow you through your entire life; however, at a certain age, (whatever the policy is deemed to go up to) for example age 125, if you are still alive, you will get the face value on the policy. The proceeds from such a policy are typically used for burial expense and other expenses that may be left behind. Whole life policies build cash value, which can be used to pay your premium after a certain point in the policy. The interest rate on these policies is guaranteed. You can also borrow against the cash value of such a policy, and the amount borrowed would come off of the face value of the policy.
Universal Life- There are a few different types of Universal Life, and I have found the most common to be, Universal Life with a guaranteed death benefit. This means that the policy will follow you through your entire life; however, at a certain age, (whatever the policy is deemed to go up to) for example age 125, if you are still alive, the policy will end. The proceeds from such a policy are typically used for burial expense and other expenses that may be left behind. This policy will build some cash value, but there is not a guaranteed cash value like there is on a whole life policy. The cash value is usually much lower than a whole life policy because the interest rates that are given for this type of policy can fluctuate but are not guaranteed; however, there is a minimum amount that is guaranteed, thus the guaranteed death benefit.
On a Whole or Universal Life policy, you can also elect how long you want to pay premiums; for a number of years or up to a certain age. For example, you could pay a policy up in 5 or 10 years so that you have no additional premium you would owe. This, of course, will cost more money for the 5 or 10 years then you would pay without this option.
Term Life– Term life is a policy that is made to cover you for a certain number of years. Term life tends to be the lowest cost life insurance because it is not made to follow you through your entire life. For example, term life can be elected for time periods of 10 years, 15 years, 20 years or 30 years. Term life is usually elected to help cover expenses, such as a mortgage, in the case of an unexpected death. At the end of a term life policy, you could choose to continue the policy at a higher rate than you were paying. The reason someone would do this would, for example, be if a health status changed and medical underwriting could not be passed again.
Employer policies typically provide for Term Life Insurance. This means that if you leave that place of employment, you will lose that life insurance coverage unless (if available) you elect the option to convert the policy. These policies are not usually medically underwritten and tend to be guaranteed issue, if the face value is under a certain amount. If your employer offers this coverage, it is definitely a plus, especially if you do not think you could pass medical underwriting on an individual policy.
**It is important to know that on most life insurance policies there is a clause regarding a specified amount of time that must pass for coverage under certain circumstances. An example would be that there is a specified amount of time you must have the policy before suicide would be covered, if it is covered at all and not excluded. Some policies may rider certain things out entirely. Most policies have a 2 year probationary or look back period, which means that for example, if on your application you said you were a non smoker and you died due to lung cancer within the 2 years, the insurance carrier could look back and investigate to find out if you were a smoker when you applied, and if in fact, you had lied on your application.
Many individual life policies are medically underwritten meaning that you could be denied or your rate could be raised due to medical history; however, not all individual policies are medically underwritten. Pre-screens can be done on medically underwritten policies to find out if you would be denied coverage or to determine an estimated rate increase.
There are also additional options that can be added to some of the above policies, some of which are:
-Return of premium- This is common on a term policy; however, it can be found on other policies during certain years on the policy. With this option, you typically pay about double in premium to have this option, but at the end of the term of your policy, if you are alive, you would receive your premium back.
-Waiver of premium- This is automatically included in some policies and not in others. This option would waive your premium for a certain period of time due to certain circumstances. Some circumstances for waiver of premium could/may be: a disability, loss of a job, etc.
-Accidental Death and Dismemberment- This option will pay additional money to the beneficiary if death was caused by an accident. If there is dismemberment such as loss of a limb, loss of sight, or loss of a bodily part, the policy will pay a certain amount due to that loss.
Long and Short Term Disability can be purchased individually or through an employer. If it is purchased through an employer, it can be a voluntary plan (meaning the employees pay for the insurance themselves) or contributory (meaning the employer pays a portion of the premium).
Short Term Disability will provide a certain amount of income every week for a disability. Short term disability insurance is purchased upfront for a certain number of weeks of coverage, usually up to 26 weeks. In other words, when you choose your policy, you would choose a policy that will provide this weekly income for a certain number of weeks, for example, a policy that would provide 13 weeks of income or a policy that will provide this income for 26 weeks. The longer the policy is going to supply you with a weekly income, the more expensive it will be. You also pick how many after how many days of illness or accident the policy would kick in at, for example, the policy could start to provide you with benefits after the 1st day of an accident or 8th day of an illness.
The amount of weekly income it will provide is based on your salary. As a generalization, a policy will typically provide 66.67% of your income with a maximum weekly allowance.
Some short term disability policies may have a pre-existing illness waiting period but many do not.
Long Term Disability will provide a certain amount of income every week/month for a disability. Long term disability insurance is purchased upfront for a certain number of weeks/years of coverage, usually up to 5 years or when social security would start. In other words, when you choose your policy, you would choose a policy that will provide this weekly income for a certain number of weeks or years, for example, a policy that would provide 5 years of income or income until social security would kick in. The longer the policy is going to supply you with a weekly/monthly income, the more expensive it will be. You also pick how many after how many days the policy would kick in, for example the policy could start to provide you with benefits after the 90 days or 180 days.
The amount of weekly/monthly income it will provide is based on your salary. As a generalization, a policy will typically provide 60% of your income with a maximum weekly/monthly allowance.
Most long term disability policies may have a pre-existing illness waiting period but be sure to also look at the policy’s definition of a pre-existing illness.
Many people will choose to align the Short Term Disability and the Long Term Disability. In other words, many people will pick options that will allow the Long Term Disability to start with no gap after the Short Term Disability ends.
Please click on the below logo to see an example from one of the carriers we represent, which shows some employer paid guaranteed issue life, long and short term disability plans and rates.