Life Insurance Resources

Life insurance is a contract binding a life insurance company to compensate a beneficiary for the death of a person insured.

What is life insurance?

Life insurance is a contract binding a life insurance company to compensate a beneficiary for the death of a person insured. If the insured dies the company will provide a cash payment to the beneficiary. Life insurance is used to protect the economic value of a human life with regards to those who may be financially dependent upon it.

Uses of life insurance

Life insurance has many uses for both individuals and businesses. Some common uses include:

Individual Uses

Business Uses

Determining you needs

There is no magic formula to determine how much life insurance you should have; however, there are a number of factors that should be considered when estimating how much life insurance you should carry. They include:


These are some factors that you should consider carefully when estimating how much life insurance you need. Everyone's life insurance needs are different but, in general, an individual's needs are greatest from the time they start their careers or a family until they reach retirement, at which time many individuals' needs for life insurance diminish. It is important to remember that you should review your life insurance needs annually to account for changes in your family's lifestyle.

Types of life Insurance

Term Life Insurance

Term life insurance provides protection for a specified period of time. A death benefit is paid to the beneficiary if the insured dies within a specified period of time while the policy is still in force. Many term life insurance plans can be converted to permanent life insurance plans without evidence of insurability.

Level premium term life insurance has premiums which remain level over a specified period of time. These plans have premiums that remain level for a period of 5, 10, 15, 20, 25, and 30 years. After the initial level period expires, the annual premium increases each year, subject to a guaranteed maximum.

In general, term life insurance is suitable when your life insurance needs are temporary or your life insurance needs are long-term but your budget does not permit the higher premiums of permanent life insurance.

What is Return of Premium (ROP) Term Life Insurance Policy?

A return of premium term life insurance policy typically offers a level death benefit with fully guaranteed* level premiums for the first 15, 20, or 30 years, though this may vary by company and state. Under the return-of-premium feature, the cumulative premiums paid, not including substandard and rider charges, will be returned at the end of the level term period if the policy is in force at that time. Often, a portion of the cumulative premiums will be returned upon surrender after the policy has been in force for a specified number of years. Most return of premium life insurance policies allow for conversion to permanent insurance offered by the same company during the covered period without further evidence of insurability. *guarantees subject to the claims-paying ability of the underwriting insurance company

Whole Life Insurance

life insurance is permanent life insurance and provides protection for life. As long as premiums are paid, a death benefit is paid to the beneficiary. The premiums for whole life insurance policies are designed to remain level over time. In addition, these policies accumulate cash values on a tax-deferred basis. The rate of return on whole life insurance cash values is dependent upon a number of factors including the results of an insurance company's investment performance. Cash values can be used for a variety of options:

The cash values of whole life insurance policies may be affected by a life insurance company's future performance. Some factors that influence a life insurance company's performance are expenses, mortality experience, and investment performance.

Universal Life Insurance

Universal life insurance is permanent life insurance. As long as premiums are paid, a death benefit is paid to the beneficiary. These policies are different from whole life insurance policies because they offer the policy owner some flexibility to change the premium payments and death benefit. The death benefit may be increased subject to insurability or decreased, and the premiums can also be increased and decreased as well as skipped. Universal life insurance policies may be purchased with one of two different death benefit options. One is a level death benefit and the second is an increasing death benefit. Although premium payments are flexible, a universal life policy will usually have a target premium which is the suggested annual premium payment. The target premium for some companies is sufficient to keep the policy in-force to age 100; however, this is not guaranteed. Universal life insurance policies also accumulate cash values on a tax-deferred basis. These cash values tend to be interest-sensitive and can be used for a variety of options:

Universal life insurance policies are valuable because they can provide permanent protection and accumulate cash values that can be used for emergencies or for meeting specific objectives. For those who prefer flexibility, universal life insurance provides more options than whole life insurance.


The cash values of universal life insurance policies may be affected by a life insurance company's future performance. Some factors that influence a life insurance company's performance are expenses, mortality experience, and investment performance.

Variable Life Insurance

Variable life insurance is permanent life insurance and provides protection for life. As long as premiums are paid, a death benefit is paid to the beneficiary. The premiums for variable life insurance policies are designed to remain level over time. In addition, these policies accumulate cash values on a tax-deferred basis with the potential for higher rates of return than traditional whole life policies. Variable life insurance policies' cash values vary with the investment results of funds chosen by the policy owner. The policy owner is given a choice of investment options which are usually stock, bond and money market funds. Unlike whole life insurance policies which have guaranteed cash values, the cash values of variable life insurance policies are not guaranteed. The cash values of variable life insurance policies can be used for a variety of options:

Variable life insurance policies are valuable because they provide permanent protection and may accumulate cash values; however, these policies carry more risk than traditional whole life insurance policies. Individuals considering purchasing a variable life insurance policy should be experienced investors in equity investments.

The cash values of variable life insurance policies may also be affected by a life insurance company's future performance. Some factors that influence a life insurance company's performance are expenses and mortality experience.

Second-to-Die or Survivorship Life Insurance

A second-to-die life insurance policy insures the lives of two people, typically a husband and a wife. The death benefit is not paid to the beneficiary until the death of the second insured. These life insurance policies are generally available as either whole life insurance or universal life insurance policies, and premiums are often less expensive than buying two life insurance policies.

Second-to-die life insurance policies are effective tools often used by wealthy individuals in estate planning. They can be used to pay for estate taxes. By removing the proceeds of a life insurance policy through the use of gifting policies and third party ownership, a life insurance policy can be used to pay for estate taxes. Careful planning by your tax and legal counsel, coupled with a properly structured second-to-die life insurance policy, can help you preserve your net worth.

Beneficiary designation

A beneficiary is a person or entity named to receive a portion of the death benefit of a life insurance policy. The owner of a life insurance policy may name multiple beneficiaries, and most insurance companies permit the policy owner to change beneficiaries.

There are two types of beneficiaries: primary and contingent. A primary beneficiary has the first claim to the proceeds of a life insurance policy should the insured die. There may be more than one primary beneficiary and the proceeds do not have to be shared equally. The policy owner of a life insurance contract may also name a contingent or secondary beneficiary. The contingent beneficiary has claim to a portion of the death proceeds should the primary beneficiary(s) be removed or die prior to the death of the insured. There may also be more than one contingent beneficiary.

Many individuals designate a spouse as the primary beneficiary of their life insurance policy and the children as contingent beneficiaries. You should consult with an estate-planning attorney prior to making a minor child a beneficiary of a life insurance policy. In addition, anyone contemplating making their estate the beneficiary of their insurance policy should use extreme caution and consult with an estate planning attorney prior to doing so.

Settlement options

The life insurance policy owner may designate a specific settlement option to be paid upon his or her death. If the policy owner does not choose a specific option, the beneficiary(s) will be given a number of choices. These usually include: