The Difference Between Health Insurance and Life Insurance

Health insurance is designed to protect you against having to pay large medical bills by offering coverage for a range of medical procedures and treatments. By contrast, life insurance is primarily designed to pay out a lump sum in the event of your death.

Life insurance is typically purchased in one of two forms.

The simplest form of life insurance, and also the least expensive, is term life insurance which pays out only on your death. You can usually purchase term life insurance for as little as one year or for up to 30 years and the policy will only pay out if you die before the policy reaches its end date. You may consider purchasing term life insurance later in life or when you feel that your life is likely to be at greater risk over a short period of time for some reason.

The second form of life insurance is whole life insurance which is a combination of both a term life insurance policy and an investment plan. Your monthly (or annual) premiums are divided between the two parts of the policy, with one part of the premium providing you with insurance cover should you die during the period of the policy and the reminder being paid into an investment vehicle, such as a mutual fund or stocks and bonds. Whole life insurance is a popular choice as it provides you with both protection for your family and a savings vehicle, possibly to meet college tuition fees or to add to retirement funds. These policies are however normally heavily loaded with both fees and responsibilities and, if you are looking at a whole life policy principally as an investment vehicle, then there are certainly better options available to you.

The cost of both a life insurance policy and a health insurance policy depend to a large extent upon your age and health and the younger and healthier you are the cheaper they will be.

Perhaps the most important thing to understand is that life insurance and health insurance are designed to cover two very different situations and it is not a case of choosing one or the other, as many people think, but it is a case of deciding as two separate issues whether you need either or both.

Whole Life Insurance – Tips For Shopping For Coverage

There are numerous types of life coverage policies to choose from, but one of the most popular types of coverage is whole life insurance. Michigan carriers will, of course, help potential policyholders purchase coverage, but there are a few steps that they need to take themselves before it's time to buy.

First, make sure you want whole coverage.

Even though it offers perks that term coverage does not, not everyone wants whole life coverage. It tends to be on the pricier side, and the "perk" of a forced savings investment component is not always desirable.

Before they start taking steps to purchase whole life insurance, Michigan residents must first decide if it's the coverage they really want.

Then, do some research.

Once they've decided they want whole life insurance, Michigan residents need to do a bit of research. This may include talking to family members, friends, and co-workers about their experiences with various insurance agencies, as well as checking any reports other policyholders have filed with the Better Business Bureau.

The goal is to find out what actual customers have to say about their experiences. Remember, sometimes the best form of advertising is word of mouth, and people are not likely to recommend a company they've had bad experiences with.

Finally, contact insurance agents and make comparisons.

Now that they've talked with others and conducted some preliminary research about the various carriers of whole life insurance, Michigan residents are ready to choose a few companies and compare those companies' premiums. Shopping for life protection is much like shopping for any other coverage, after all; not every carrier is going to provide the same coverage for the same price.

Do I Need Life Insurance? — The Motley Fool

There are certain types of insurance we all need. Health insurance immediately comes to mind, as do homeowners or renters insurance and auto insurance for those of us who drive. But when it comes to life insurance, the answer isn’t always so clear-cut. For example, if you’re the sole income earner in your family, it pays to buy life insurance. But what if you’re married without children and your spouse has a job, too? In that case, the need for income replacement isn’t as great. That’s why you’ll need to answer one key question to determine whether getting a life insurance policy is a smart financial move.

Is life insurance a worthwhile investment?

The purpose of having a life insurance plan is to give your loved ones financial protection in the event that you pass away earlier than expected. Of course, if life insurance were free or incredibly cheap, most of us would get it. But because premiums can be quite hefty, you’ll need to figure out whether it really makes sense for you. And the best way to do that is to ask yourself one simple question: Will my death impact anyone else’s finances?

Man and woman carrying children on their shoulders

IMAGE SOURCE: GETTY IMAGES.

So let’s go back to the above example of a childless person whose spouse works as well. Sure, your spouse might have a means of earning a living, but what if you bought a house together under the assumption that you’d both be making money to pay the mortgage? If you pass, your spouse might struggle to keep up with those payments. On the other hand, if you have life insurance and pass, your spouse might manage to keep that home.

The same holds true if you’re a stay-at-home parent who doesn’t earn an income. Even if you’re not contributing financially to your household, your death would indeed impact your family’s finances. That’s because if you pass and therefore aren’t around to care for your children, your spouse will need to start paying for child care in order to continue working.

When you think about your need for life insurance, it almost doesn’t matter how much you earn or whether you actually earn any money at all. Rather, the decision should be based on whether your passing will negatively impact the finances of someone else in your life (typically a child or spouse). If the answer is yes, then it pays to get a policy.

How and when to buy life insurance

Once you determine that you should, in fact, have a life insurance policy, the next step is deciding when to apply and figuring out which type of policy is best for you. As a general rule, the younger and healthier you are when applying, the lower your premiums will be. But in some cases, it might pay to wait. For example, if you’ve recently gained weight and are above what’s considered the healthy limit for your age, it might pay to hold off, work on shedding some pounds, and apply for insurance once you’re in better physical shape.

The next step of the process involves deciding how much coverage to purchase. A $1 million death benefit will cost more than a $200,000 payout, so the amount of insurance you buy should be based on the amount of replacement income you’re aiming to leave to your beneficiaries. If you’re working with a financial advisor, that person can help you pinpoint that amount. You can also ask your insurance agent to break down some numbers for you based on your present and projected finances, but keep in mind that he or she may try to upsell you on a coverage amount you don’t need.

Types of life insurance

Once you determine how much coverage you want, you’ll need to decide which specific type of insurance to get. Your two choices are term life insurance versus whole life insurance.

Term life insurance works by offering coverage for a specific period of time, or term, and is typically less expensive than buying a whole life policy. Term life policies do not accumulate any cash value over time. If you pass away during your period of coverage, your beneficiaries will collect your death benefit. If you live until the end of your policy’s term, nobody gets anything.

Whole life insurance, meanwhile, is designed to offer coverage for your entire life. Whole life insurance policies accumulate cash value over time, so that if you decide to surrender the policy later in life (say, if you’ve managed to live until 80), you get to take the cash in lieu of a death benefit payout. Whole life insurance tends to be much pricier than term insurance, but you can also use it as an investment vehicle, which could make those higher premiums worth the cost.

There’s a lot of thought that goes into the decision of whether to buy life insurance, so don’t make the mistake of rushing through the process. Finally, if you do buy a policy, review it periodically to make sure it still serves your needs. You may need to up your coverage as life evolves, so keep it on your radar to ensure that your family is adequately protected.

Life Insurance From a Woman’s Perspective

Women have more financial responsibilities than ever before and a recent study shows more women feel solely responsible for household finances than men.

(Newswire.net — October 30, 2017) Syooset, New York — The world looks a lot different in 2017 than it did in the 50s or 60s, when Suzy Homemaker stayed home, dutifully waiting on Jack Workman to return home from his day of hard work. Suzy had the dinner ready, the kids quietly tucked away in the corner, doing their homework. 

Today, it’s more like the kids are yelling at each other over the iPad, while Mom tries to tune them out and make dinner while navigating a work conversation on her cell phone. Meanwhile, Dad is either doing the same or trying to get some work done on his laptop. 

Women have more financial responsibilities than ever before. In fact, according to a Regions Bank study, more women feel they are solely responsible for household finances than men. 

In another study, more than half of women said the thought of running out of money in retirement is a huge source of stress and keeps them awake at night — their biggest fear other than losing a spouse. About the same amount of women who responded said they fear losing all their money and becoming homeless. 

These are major concerns, and with this in mind, whether single, married, employed, or a stay-at-home mom, women will most likely need life insurance. This is true for a multitude of reasons, the least of which is that life insurance can aid in paying for the costs of funeral and burial services, estate administration, outstanding financial obligations, estate taxes, and the uninsured expenses of a fatal illness.

The hard truth is that death is inescapable, short of someone discovering a way to reverse aging permanently, and life insurance is not like other types of insurance. The reason for this is that it’s the only kind of insurance where the policyholder’s family will need it at some point in time.

This distinction is important to understand, notes Vice President of Insurance Services for David Lerner Associates, Dan Gardella. “When viewed through this lens, life insurance isn’t an expense, it’s an asset that may provide an income stream for the family. As long as you pay the premiums and maintain the policy, your beneficiaries will receive the death benefit.” 

Life insurance types and options

Life insurance comes in many different sizes and shapes, and determining the policy that meets your needs may depend upon a number of factors. Understanding the basic kinds of life insurance can help you discover the policy that’s appropriate for you.

Term life insurance provides a simple death benefit for a specified period of time. If you pass away in the course of the coverage period, the beneficiary you name in the policy receives the death benefit. 

Whole life insurance can provide permanent life insurance coverage for your life. One of the key features of whole life insurance is it may build tax-deferred cash value and dividends. A policy owner can access the values to help pay for college tuition, supplemental retirement income, or to start a business. These are just a few examples. This can be done through a loan feature offered in the policy. Please note, any amount of cash value borrowed from the policy value decreases the face amount of the policy. The policy owner can pay back the loan if they choose to, however, it is not mandatory.

There are many other types of life insurance policies available. The bottom line is that life insurance protection for women is equally as important as it is for men. It may be time to consult an insurance professional who can help you assess your life insurance needs, and offer information about the various types of policies available.

It was found recently that people don’t buy life insurance because of competing financial priorities or because they think they cannot afford it. Interestingly, it was also found that consumers overestimate the cost of life insurance by as much as three-fold.

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. Member FINRA & SIPC.

About David Lerner Associates

Founded in 1976, David Lerner Associates is a privately-held broker/dealer offering the Sensible Middle Ground of Investing. The headquarters are in Syosset, New York and there are branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY.

Comparing 3 of the Cheapest Life Insurance Options

This content is made possible by our sponsor; the views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Life insurance plays a valuable role in financial planning, providing families capital to pay off loans and give their loved ones proper burials. However, in LIMRA’s most recent industry survey, 41% of respondents indicated they didn’t have coverage, with the majority citing the cost of life insurance as a top factor.

However, for people in reasonably good health, it’s actually quite simple to find life insurance that costs less than a dollar per day. You just need to choose the right type of policy.

First, a few money-saving tips that apply to all policy types. Generally, policies that don’t have a cash value or investment component are going to be least expensive. Additionally, if the policy only lasts for a fixed period of time, premiums will be lower, as there’s less likelihood you’ll pass away during the period of coverage.

Be wary, though, of any life insurance policies that don’t have level premiums for the entire length of coverage. With these, premiums will multiply in price over time and if you want to find a less expensive policy later, you’ll be older when you apply, meaning you’ll qualify for worse rates.

Term Life Insurance

One of the most common reasons people buy life insurance is to make sure their family would be able to pay off the mortgage on their home in the event they died. Parents also often seek to purchase coverage to cover the cost of sending their kids to college. These types of scenarios are exactly what term life insurance is designed to cover, by offering a large amount of coverage inexpensively for a fixed period of time.

Term life insurance is regularly recommended by financial advisors, since these policies are more flexible and significantly less expensive than permanent coverage. An oft-repeated mantra throughout the industry is actually “buy term and invest the difference.” As in, the cost to purchase an equal level of whole life insurance coverage is typically several times the cost of a term policy, and the savings for choosing the term option can be invested to gain further savings still.

Nearly every insurer offers term life insurance and policies can regularly provide up to $10 million in death benefit. The only restriction on term life insurance, as mentioned earlier, is that policies extend for a fixed amount of time, such as 20 or 30 years.

Guaranteed Universal Life Insurance

If you prefer permanent financial protection for your family, rather than coverage for only a fixed period of time, you should consider opting for guaranteed universal life insurance. Guaranteed universal life insurance is usually the least expensive way to purchase lifelong coverage. Unlike other forms of permanent life insurance, such as whole life or variable life policies, guaranteed universal life insurance typically has little to no cash value–meaning it cannot be redeemed at will in exchange for a sum of money. Instead, guaranteed universal coverage behaves like a term life insurance policy that simply lasts until you’re over 100.

Guaranteed universal life insurance is also a great option if you want permanent coverage but have pre-existing medical conditions that would preclude you from passing the medical exam that’s typically required to obtain whole life insurance. If you’re seeking a simplified issue policy, –for which only a medical questionnaire is required, rather than a full exam–a wider range of death benefits are typically offered for simplified issue guaranteed universal policies than for simplified issue whole life insurance (which typically have a maximum face value of around $50,000).

Accidental Death & Dismemberment Insurance

While accidental death and dismemberment insurance (AD&D) is available as a standalone policy, it also regularly offered as an add-on to a life insurance policy. AD&D includes accidental death insurance, so your beneficiary will receive a payout should you pass away due to an accident. However, such a policy will also pay a benefit should you lose a limb or certain necessary bodily functions. Sun Life Financial, for example, pays a benefit if you become a paraplegic or lose your vision in an accident.

Only one in twenty deaths is due to an accident, which is a key reason that AD&D insurance is inexpensive. You can typically get hundreds of thousands of dollars in coverage for a premium of less than $15 per month.

Accidental death insurance is primarily valuable if your family would be able to handle the costs of your passing so long as they had warning, but would have greater challenges if you died suddenly. As an example, if you recently moved into a larger house and the majority of your savings had gone towards the mortgage, your family would have little money on hand to deal with your sudden passing. However, given several months, they might be able to save or downsize enough to be able to pay for your medical care and passing.

This content originally appeared on ValuePenguin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Northwestern Mutual Life Insurance Co. said Wednesday it expects to pay more than $5.3 billion in dividends to policy owners next year.

Northwestern Mutual Life Insurance Co. said Wednesday it expects to pay out more than $5.3 billion in dividends to policy owners next year.

The 2018 payout will be about $142 million higher than this year’s amount and marks the 147th consecutive year the Milwaukee-based insurer will pay dividends to policy owners.

“I am incredibly proud of the value we are delivering to our policy owners through dividends,” John E. Schlifske, chairman and chief executive of Northwestern Mutual, said in a statement.

The 2018 total dividend would be the third-highest in company history, trailing only $5.6 billion in 2016 and $5.5 billion in 2015.

The overall dividend payout is determined each year by claims paid to policy owners, expense management and the performance of the company’s investments.

The company also adds to its surplus, which is an insurer’s cushion against the unexpected.

“We try to pay the highest level of dividends that are consistent with superior long-term financial strength,” Mike Carter, Northwestern Mutual chief financial officer, said, adding that the company has the top financial rating from all rating agencies.

Carter, who is a Northwestern Mutual executive vice president, noted the payout comes despite a long-running low interest rate climate. Low interest rates make it more difficult for insurers to increase earnings because insurance companies invest premiums from policy owners mostly in relatively safe investments tied to rates.

“The fact that this is third-highest dividend payout in our history, despite what you know is a very tough low interest rate environment, that’s something that we’re really proud of,” Carter said.

Policy owners who own whole life insurance, disability insurance and some annuity products are eligible for dividends, and they have a choice and flexibility with respect to how dividends can be used.

Dividends can be used to reduce the cost of premiums, to increase the cash value and/or death benefit of life insurance, or be taken in cash.

Northwestern Mutual, with $250.4 billion in assets and annual revenue of $28.2 billion, has more than $1.7 trillion worth of insurance protection in force. 

 

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What you need to know about life insurance

Have you considered your life insurance lately? Does the life insurance policy that you bought years ago still fit your family needs? If you have a term life insurance policy, it may make sense for you to consider switching it to a whole life policy under certain conditions — but what are those conditions?

Let’s start by reviewing the difference between term and whole life policies.

Term life insurance policies are designed to provide protection for your family in case of your death — but only for the term stated in the policy (for example, 20 or 30 years). Aside from the benefits payable upon death, there are generally no other benefits included.

When the policy reaches maturity, the coverage ends and you stop paying premiums. Some term life policies will allow you to qualify automatically for a new term life policy after expiration. You won’t have to take another medical exam, but your premiums will likely increase.

Whole life insurance costs more, but it is a permanent form of insurance with an investment component. As long as you pay the premiums, coverage generally stays in effect for your entire life (unless you live to age 95-121 depending on your policy). A portion of your premiums goes to cover death benefit obligations, while the rest is placed in some form of investment, building cash value.

As time goes on, your life insurance needs may change to make a whole life policy more suited to your situation. There are four typical reasons, along with variations on these themes:

  • You could only afford a term policy on your initial purchase, and you now can afford the higher premiums of a whole life policy — and have decided that the return on a whole life policy is a better use of money than a term life policy with the difference in term and whole life policy premiums invested separately.
  • You want to extend insurance beyond the original term policy and prefer to switch to whole life to avoid future policy changes (or, as in the above case, you like the investment aspect of a whole life policy).
  • Your health is degrading to the point that you can’t get an affordable policy when the term policy expires. By switching to a whole life policy, you will not have to take a medical exam to determine insurability.
  • You think a permanent life policy would make life easier on others after you are gone, such as by providing trust funds for a special needs child or helping your heirs pay estate taxes.

To be able to switch, your term policy must be a convertible policy. Most are, but it’s important to verify this with your insurer. Convertible policies generally have a limit on when they can be converted, driven by your age or the percentage of your policy remaining.

From a pure economic standpoint, if you plan to convert from term to whole life, it makes sense to do so early in the policy. Premiums for a whole life policy will increase as you age. However, you must consider whether the investment portion will meet your family needs. If you have other investments such as a 401(k) or IRA that are more growth-oriented, a whole life policy can fill the conservative space in your portfolio.

You may have good reason for converting your term life into a whole life policy, but understand all of the ramifications involved. Don’t just accept a sales pitch. Make sure that you clearly define what you want out of a life insurance policy, and consider both the economic factors and risk/safety factors with all of your options.

This article was provided by our partners at MoneyTips.

Here’s What You Need to Know to Understand Life Insurance

Many entrepreneurs wear many hats, which can include the hats of husband, wife, father, or mother. Having a family can bring blissful life moments, but managing the nuisances of said family also requires various levels of risk planning. If the unfortunate occurs and you pass away before your kids become “efficient adults,” this could leave a major burden on your partner, not to mention the issues that your kids have as they potentially struggle to start out in life on a solid framework. There’s really two main types of life insurance products, there’s the Term Life policy and then there’s an assortment of Permanent Life policies.

Not Every Life Insurance Agent Is Created Equal

Life insurance helps insure against these situations, however, not every life insurance agent is created equal in terms of ethics and professionalism. Some agents will promote policies that bulk up their commission, rather than prescribing the “right” policy for your situation. For this article, I will discuss term life insurance versus the other types of life insurance policies on the market and how you as a small business owner, can determine how much life insurance is required.

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Term Life Insurance

Term Life is strictly life insurance, which means the premiums you pay each month are going strictly towards a death benefit that’s paid to your beneficiaries if your death is one of the “covered” deaths under the policy. Because you are strictly paying for “life insurance”, the premiums are pretty low.

  • Opponents of Term Life point to the fact that if you don’t die within the policy coverage duration, then you “lose” all of the premiums paid.
  • I believe viewing any insurance product like this is a faulty vision, as you are paying for an insurance service and if the service provided said insurance coverage, then you received the product you paid for.
  • It’s just like when you pay for six-to-12 months of car insurance and don’t get into an accident during the policy term, it’s not as if you “lose all premiums paid,” but instead you were covered during that period of time in case said accident occurred.
  • However, there is a rider that can be applied to Term Life called a “Return of Premium Rider.” This can be applied as a rider to Term Life policies and works to where if you don’t die during the policy duration, then all premiums paid in can be returned at the end of the policy coverage period. Having this rider on the Term Life policy would increase the overall premiums though, but the fact that if you don’t die then the premiums paid in could be returned to you, is a side benefit that many people prefer.

Permanent Life Insurance

Permanent Life Insurance is one that actually covers the insured entire life, with the premiums being paid in covering not just a death benefit payout, but also building cash value aspects within the policy that might be utilized later down the line for policy loans.

The aspect of cash value being tied into the policy creates all sorts of nuisances that drives up costs and causes many Americans to not deal with the level of complexity. In addition, seeing as though most Americans will not have a need for life insurance their entire life, this makes Term Life even more of an attractive option for most Americans.

There are actually a couple different variations of Permanent Life insurance products but the main three include Whole Life Insurance, Universal Life Insurance, and Variable Life Insurance.

Whole Life Insurance: In general, a Whole Life policy will have premiums that are fixed for the duration of the policy and the cash value aspect is similar to a savings account with a guaranteed minimum rate of return. But a Life Insurance Agent does have additional ways to restructure a Whole Life policy, however, in general, this is how a Whole Life policy would operate.

Universal Life Insurance: This allows the policy owner to change death benefit and premium structures throughout the policy term. Also the policy owner has the option to use cash value monies to pay for premiums. In relation to cash value aspects, there is a minimum interest rate that’s applied but if the insurance company’s portfolio operations outperforms, the excess amount would be applied to the cash value totals.

Variable Life Insurance: This is where the cash value aspect is pretty much tied to certain mutual fund like “sub-accounts” that are setup within the policy. The investments are in vehicles such as the stock market, which means with market booms there can be great growth, or market crashes, there can be major losses. A plus here though, is that any cash value growth is not taxable as ordinary income.

Bank On Yourself, Be Your Own Banker, and Infinite Banking Concepts

To wrap up this article, we have to take a look at a marketing concept that many Life Insurance Agents are using in order to get more Americans to purchase Permanent Life Insurance.

It’s no secret that Life Insurance Agents are paid more commissions when they sell a Permanent Life Insurance policy compared to that of a Term Life Insurance policy, so trying to get clients to sign up for Permanent Life Insurance in any form or fashion, becomes the goal of many Life Insurance Agents.

  • So the concept being sold is that one can become their own banker, through living off the policy loans that they are allowed to take through the Permanent Life Insurance products.
  • The Life Insurance Agent would actually setup a couple of riders on a Permanent Life Insurance policy and have the policy owner “overpay” the policy in an attempt to build up the cash value aspect “quicker,” allowing for the utilization of “policy loans” to kick in faster. The owner would then begin using the policy loans for various purchases and other procedures.

There are so many nuisances, issues, and complications with using this strategy that myself along with other trusted and credible financial professionals do not recommend that the typical American family purchase any insurance product with the goal of using it as a separate investment vehicle.

Yes, Permanent Life Insurance allows for cash value build up in a variety of ways, but it’s always been my recommendation to “buy term and invest the rest.” If you are of one of many Americans that might have issues with “investing the rest,” please refer to a trusted financial advisor or CPA who can assist, rather than referring to a Life Insurance Agent who might not be looking out for your best interest, but might instead be looking out for his commission check.

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What the heck is policy-indexed universal life insurance?

When it comes to life insurance, there are so many different options and “flavors” that deciding which type of policy is right for you can be difficult and confusing. Not to complicate matters even more, but there is one type of insurance that you might want to add to the flavor mix if you are shopping for life insurance: indexed universal life, or IUL.

IUL is a form of universal life (UL) insurance, which is itself a form of whole life insurance. Whole life insurance is also sometimes referred to as permanent insurance because it provides protection for as long at the insured lives, instead of just for a period of years, like term life insurance.

Cash Value and a Death Benefit

Policies under the whole life umbrella allow policyholders to build up cash value within the policy on a tax-deferred basis while still enjoying a death benefit. Accumulated cash value can be tapped for a variety of needs, including retirement income.

Depending on the type of whole life insurance, policyholders can invest their cash value in a variety of different vehicles via what are called subaccounts. Indexed universal life allows policyholders to invest their cash value in an equity index account, like the S&P 500, Russell 2000 and Nasdaq 100.

Indexed universal life insurance is similar to variable universal life insurance (VUL), with one key difference: VUL policyholders can invest their cash value in stock and bond subaccounts that are similar to mutual funds. Conversely, an IUL’s cash value can only be invested in an index account. This tends to make IUL policies less volatile than VUL policies.

In addition, IUL typically offers a guaranteed minimum fixed interest rate over the long term, and the principal is generally protected from loss, which makes IUL less risky than VUL. At the same time, though, there may be a cap on the accumulation percentages of an IUL policy, which effectively limits the return potential. In other words, IUL generally features less risk than VUL, but also lower potential return.

How an IUL Policy Works

A portion of each IUL premium payment goes to pay for the insurance component of the policy, another portion goes to pay fees, and the rest goes to cash value. The amount of interest credited to the policy is calculated based on the difference in the value of the selected index at the beginning and end of the month, with gains credited to the policy on a monthly or annual basis.

For example, if the selected index gained 4 percent during the month of October, 4 percent of the current cash value would be added to the policy’s total cash value. If the index goes down in October, no interest is added to the cash value — but no cash value is subtracted, either.

Note that the insurance company can set a percentage rate that effectively limits the amount of interest that can be credited to an IUL policy. This participation rate generally ranges from 25 percent to more than 100 percent. So if the selected index gained 4 percent in October, the cash value that month was $20,000 and the participation rate was 50 percent, then $400 would be added to the cash value [(.04 x 20,000) x .5 = $400].

IUL is just one of many different types of policies you should consider if you are shopping for life insurance. Given all the different life insurance options and their complexity, it is a good idea to talk to a financial planner and life insurance expert for help in choosing the right kind of policy for you and your family.

Get free life insurance quotes and apply for your top choice in minutes using our Life Insurance Quote Comparison Tool.

This article was provided by our partners at moneytips.com.

To Read More From MoneyTips:

Why You Should Purchase Life Insurance

Video: How Much Life Insurance Do I Need?

Simple Steps To Ease Your Debt Burden

 

Photo ©iStockphoto.com/Ildo Frazao

 

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Hunters become the hunted in Japan’s life insurance sector- Nikkei Asian Review

TOKYO — Midsize foreign-affiliated life insurers in Japan are becoming acquisition targets.

One trend at play is the diminishing prospects for growth of Japan’s market as the country’s population shrinks. Elsewhere, regulations are playing into the hands of acquisitors — U.S. and European regulators are getting strict with their own industries, causing insurers based in those markets to rein in their overseas operations.

Nippon Life Insurance is in the final stages of acquiring MassMutual Life Insurance, the Japanese unit of U.S. insurer MassMutual Financial Group. Earlier, FWD Group of Hong Kong acquired AIG Fuji Life Insurance, a midsize foreign-affiliated insurer operating in Japan. 

Foreign life insurers acquired a number of Japanese companies that ran into financial trouble following the bursting of the bubble economy in the late 1990s and needed foreign capital to stay afloat. The foreign-affiliated companies include: GE Edison Life Insurance, established to take over contracts from collapsed Toho Mutual Life Insurance and now called Gibraltar Life Insurance; U.S.-affiliated Prudential Life Insurance, which absorbed Aoba Life Insurance that was founded to assume contracts from failed Nissan Life Insurance; and AXA Group of France, which made Nippon Dantai Life Insurance a subsidiary.

MassMutual’s Japanese business was derived from Heiwa Life Insurance, which accepted an injection of capital from an American company.

American insurer Aflac, known for its cancer coverage, and other foreign-affiliated companies have kept expanding by emphasizing differences from their Japanese counterparts.

Nippon Life is finalizing negotiations to acquire a majority of MassMutual for an estimated 100 billion yen ($886 million) to 200 billion yen. The deal would be the first major acquisition involving life insurers operating in Japan since Nippon Life’s purchase of Mitsui Mutual Life Insurance for 280 billion yen in 2015.

Following the acquisition of Mitsui Mutual — strong at selling through representatives — Nippon Life wants MassMutual’s over-the-counter bank sales to bolster operations via multiple sales channels.

“No decision has been made on the [acquisition], though we are conducting studies both at home and abroad,” Nippon Life said Thursday.

Leaving Japan

In recent years, foreign-affiliated insurers have increasingly been reducing operations in Japan or pulling out of the market entirely. For example, Allianz Life Insurance Japan stopped accepting new contracts in 2012, while Hartford Life Insurance sold all of its shares to Orix Life Insurance in 2015.

American International Group, bailed out by the U.S. government following the global financial crisis, sold its entire stake in AIG Fuji Life to FWD Group.

The life insurance market is growing more slowly in Japan than elsewhere in Asia. Negative interest rates introduced by the Bank of Japan are also hindering insurance companies.

Lately, many major American and European insurers are scaling down overseas operations in a bid to raise their net worth ratios, which are measures of solvency. As long as the Japanese market remains stagnant, they may retreat altogether.

In contrast, big Japanese insurers are expected to expand operations to offset falling profitability. Witnessing Nippon Life’s aggressive acquisition strategy, other large insurers are likely to counter with moves of their own.

According to an executive at FWD Group, a rare buyer among foreign-affiliated insurers, the company is expecting growth thanks to its distinctive policies, as Japan is the world’s second largest market.

Negative rate impact

In 2001, Japan lifted the ban on over-the-counter insurance sales at banks, after which the number of policies allowed through the channel began to gradually increase. All controls were lifted in 2007.

Foreign insurers were attracted to Japan as yen-denominated, single-payment whole life insurance became popular for managing retirement money. But the BOJ’s negative interest rate policy adopted in 2016 dampened their interest. Many of them stopped offering yen-denominated policies for fear of negative spreads due to falling yields on government bonds, or else lowered guaranteed returns.

As a result, OTC sales of insurance plunged to around 4 trillion yen in fiscal 2016 from the previous year’s 7 trillion, according to an estimate by Nikkei Inc.

With yen-denominated insurance losing its appeal, Meiji Yasuda Life Insurance and other domestic insurers began to offer foreign currency-denominated policies, hitting MassMutual hard. In addition, increasing sales by Japanese insurers — helped along by strong ties with banks — have steadily eaten away at MassMutual.

Domestic insurers used to be cautious of OTC sales, fearing they would adversely affect their marketing through sales representatives. But this has drastically changed since OTC sales were permitted, with Dai-ichi Life Holdings and others establishing subsidiaries to promote the practice. In the April-June quarter of 2017, foreign currency-denominated polices accounted for more than 70% of OTC sales.

Nippon Life decided to acquire MassMutual possibly in expectation that the OTC market will expand.

The insurer, which used to be opposed to OTC sales, has fallen behind in offering foreign currency-denominate policies. The new acquisition may help its product line and, ultimately, allow the company to catch up.