There Are Two Basic Types of Life Insurance: Term and Permanent
Term Life Insurance is the most basic type and is designed to provide coverage for a specified period of time, usually 10 to 30 years, in exchange for a monthly premium (payment). This type of insurance is usually the most affordable option for individuals under the age of 50.
Permanent life Insurance lasts for the insured person’s entire life, as long as premiums are paid. Permanent policies combine a death benefit with a savings account. The cash value that accumulates with this type insurance can later be withdrawn or taken out as a loan against the policy.
There Are Two Main Types of Permanent Insurance: Whole and Universal
Whole Life Insurance is designed to insure someone for their “whole” life. With Whole Life, you have a guaranteed premium, interest rate, and death benefit for the life of the policy. The cash value grows tax-deferred and also typically allows for withdrawals and loans against the policy. One major advantage to this type of policy is that you can cancel it and receive the accumulated cash value.
Universal Life Insurance is similar to Whole Life as they both have cash value that accumulates in a tax-deferred savings account over time. However, Universal Life policies have a greater degree of flexibility over a traditional Whole Life policy. Universal Life policies give you the ability to adjust the premium and the benefit amounts over the term of the policy. There are several types of Universal Life plans available, including a Variable Universal Life policy, which allows you to invest the cash-value portion in a variety of investments such as mutual funds.
Specialty Life Insurance Plans
Linked (or Combination) Life & Long-Term Care Insurance provides two forms of valuable protection in one policy. Some plans offer recurring premiums while others require a large single premium. Like all life insurance policies, they pay a death benefit to your beneficiaries. However, what sets them apart is the ability to deduct from your death benefit the amount you may need to pay for long-term care costs. Some permanent life insurance plans will allow you to purchase an optional rider for long-term care coverage.
Final Expense Insurance is a small life insurance policy designed to cover the immediate costs associated with a death, such as burial, cremation, casket, funeral service, headstone, burial plot, etc. In 2012, the average cost of a funeral alone exceeded $8,000. Though most people don’t like to talk about end-of-life issues, they also want don’t want to place this financial burden on their loved ones.
What Is the Secondary Market for Life Insurance?
In its infancy the Viatical Life Insurance market place was founded to purchase life policies from persons who had a very short life expectancy and to provide them with the cash needed to pay for medical costs and other needs. The industry has evolved primarily into a market to purchase life insurance policies from seniors, 65 and older, who may be healthy and expect to live a long life or persons not so healthy.
Seniors choose to sell their policies for many reasons, here are some common reasons:
- The policy or policies may no longer be needed
- The premiums are unaffordable or perceived to be high for the amount of coverage
- The policy or policies may be outdated and replacement policies may have lower premiums
- The cash that could be received can be used for retirement purposes and planning.
Selling a life insurance policy is referred to as a ‘Life Settlement’, a ‘Viatical Settlement’, or a ‘Senior Life Settlement’. These terms generally all mean the same thing in North Carolina.
The North Carolina Department of Insurance describes a Viatical Settlement as a contractual agreement to provide the owner of a life insurance policy immediate cash in exchange for the sale and transfer of that right of ownership. The only exception is if an insured has a life expectancy of two years or less.
In a Viatical Settlement, the policy or policies are sold in a ‘secondary’ market (called providers or purchasers) for an amount of money greater than the cash surrender value but less than the benefit amount of the life insurance policy.
GPAgency is a licensed Viatical Settlement broker. We work with insurance brokers and agents, and financial planners and their clients who wish to sell an older life insurance policy or policies. The Viatical Settlement Act in North Carolina requires providers and brokers involved in the senior settlement or life settlement markets to be licensed, which we have been for more than a decade ‒ and are among one of the first to obtain this license.