DeFuso Insurance And Retirement Services  
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   Types Of Life Insurance

Many people get a little confused when trying to understand the different types of life insurance and what type of insurance would best suit their needs. 
Let us help you understand the three most common types of life insurance.

Term life insurance is life insurance that covers you for a specified period of time at a specified premium for that period of time.  Term life insurance premiums typically increases upon renewal or at the conclusion of the term.  Some term life insurance is guaranteed renewable and some term life insurance is convertible to a more permanent type of life insurance.  As a simple example:  If you got a 1 year term policy, the insurance would pay the specified death benefit upon your death during that year or term.  At the end of the 1 year term you have the option to renew the policy for another 1 year term.  Term premiums increase with age so if you renewed your 1 year term policy you would see an increase in premium each time you renewed for another year.  Term policies are typically offered in 1, 5, 10, 15, 20 and 30 year terms.

                               <<  Very affordable while needing coverage in your younger years.
                               <<  Very expensive and may not be the best choice in your later years
                               <<   Is NOT permanent coverage
                               <<   Does not build Cash Value
                               <<   All premium dollars are lost and coverage ends at the conclusion of the term.
                               <<   Return of premium is available giving you back your premiums at the
                                      conclusion of the term for a higher monthly premium.
                               <<   Death benefits are paid to beneficiaries avoiding probate and taxation
                               <<   Common uses include:  Mortgage insurance, large affordable death benefit
                                      where permanent insurance isn't needed, affordability at younger ages

Whole life insurance is much like the name implies.  It is permanent coverage for your whole life.  Most commonly the premiums are guaranteed to never increase and the death benefit is guaranteed to never decrease.  If you reach age 100 the policy pays you the death benefit amount and future premiums cease.  There is also graded benefit whole life where at certain ages in life the death benefit will decrease.  As an example, you may have a $50,000 death benefit in a graded benefit policy that will decreases to $25,000 at age 65 and decrease again to $10,000 at age 80.  Whole life does build cash value that allows you to burrow from your cash value account if you choose.  A portion of your monthly premium covers the cost of insurance given your current age and covers administrative costs.  The balance of your premium is added to your cash value account earning interest for the life of the policy.

Permanent coverage that lasts your whole life assuming all premiums are paid
                               <<   Builds cash value
                               <<   Potential for death benefit growth in future years
                               <<   May pay dividends
                               <<   Allows you to burrow from the policies cash value account tax free
                               <<   Most commonly premiums and death benefit guaranteed to never change
                               <<   At age 100 future premiums cease and the death benefit is paid to the insured
                               <<   Affordable permanent coverage for most age groups
                               <<   Death benefits are paid to beneficiaries avoiding probate and taxation
                               <<   Cash value is available without taxation as income
                               <<   Common uses include:  Final expense plans or burial insurance, when
                                      affordable permanent coverage is needed for most age groups, building
                                      income tax free funds for retirement through cash value growth, future ability
                                      to burrow funds from the cash value paying yourself back with interest rather
                                      than a financial institution

Universal life insurance is also known as flexible premium life insurance and is another form of permanent life insurance.  It is more directly tied to economic conditions and the policy performance can fluctuate with changes in the economy or market either in a positive or negative way.  It is much like whole life insurance though offers more flexibility in death benefit or monthly premiums and is by far more complex and portable than any other form of life insurance.  Policy owners can stop making monthly premiums and let the cash value pay them while funds are available.  When the cash value gets low monthly premiums must restart to keep the policy in force.  Owners can put extra cash into the policy, increasing monthly premiums at will for substantial growth of the cash value account up to the limit the tax code allows.  Many people use universal life for very affordable permanent coverage by letting the increase in the cost of insurance be paid automatically from the cash value account as the insured ages and the cost of insurance increases.  While you're younger the actual cost of insurance is much less then in your later years.  If the policy is set up correctly your monthly premiums more than cover the cost of insurance in your younger years creating substantial cash value growth.  In later years when the actual cost of insurance is much higher the cash value growth is used to help offset the increase in the cost of insurance allowing you to have substantial coverage with no increase in premium later in life.  Universal life insurance is a great tool for creating tax free income for retirement through the cash value account while protecting those you love most in the event of an unexpected death.

                                <<   Permanent coverage based on performance and premiums paid
                                <<   Flexible premiums and potential death benefit growth
                                <<   May pay dividends or dividends can be added to increase death benefit or
                                       cash value

                                <<   Builds cash value
Allows you to burrow from the policies cash value account tax free
                                <<   Death benefits are paid to beneficiaries avoiding probate and taxation
                                <<   Cash value is available without taxation as income
                                <<   Great way to build tax free income for retirement
                                <<   Common uses include:   When a sizable death benefit is needed with
                                       permanent coverage, building tax free funds for retirement through cash
                                       value growth, when flexibility of budget or financial life changes are a
                                       concern, to replace inheritance for your aires leaving them a tax free
                                       inheritance rather than a tax bomb, replacing your funds allocated to airs at
                                       your death while allowing you to enjoy your savings and retirement funds

Life insurance and its uses are by far more complex then we can get into here.  We've helped our clients in many ways through life insurance that most people had never thought possible or considered.  Contact us today and let us show you how we've changed people's lives through the proper planning and use of life insurance.

DeFuso Insurance And Retirement Services

Lincolnton, NC



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