Also changing are the kinds of policies being chosen by Americans, notes Joshua Klein, Kornreich-NIA’s Director of Life Insurance, an affiliate of The NIA Group. Term and permanent life insurance were once the only two product types. But increased consumer knowledge and demand for investment returns, guarantees and flexibility have resulted in new plan choices that can be customized to fit one’s specific insurance needs.

Change in Permanent Plans Suits Today’s Multiple Lifestyles
While low cost term life insurance, which allows policyholders to select a specified amount of coverage for a specific, predetermined amount of time, has continued to be competitively priced, the world of permanent life insurance has changed dramatically over recent years.

“Consumers have more choices than ever to match insurance products to their specific financial, family and estate planning needs,” notes Klein. “Essentially, permanent life insurance coverage is good for as long as you live with the death benefits payable to your beneficiaries at the time of your death—no matter when that occurs. The higher premiums on permanent policies support the policies in the later years and can also provide a form of tax deferred savings known as the cash value,” he explains.

Klein describes the variations of the permanent life insurance policies that have emerged over the years as four different policy types:

Standard whole life insurance is the most basic of these options and is where the insurance company controls the way the cash value portion of the policy is invested. It is the most conservative type of insurance protection with the insurance company controlling the way the cash value is credited, primarily based on long term investments in bonds and real estate.

Universal life insurance policies tie the interest rate return on the cash value to the insurance company’s general account portfolio return on investments. Interest crediting rates and cash values will fluctuate with the changing economy and premium payments are subject to change to maintain the coverage. A universal life policy provides you with greater flexibility and returns based on the insurance company’s general investment account -- with the potential for profit as well as for loss.

Guaranteed no lapse universal life insurance policies are like traditional universal life products; however, the investment portion is minimized while the premium amount, duration of payments and death benefit are all guaranteed. As long as premiums are paid on a timely basis these products will pay upon death (some even beyond the age of 120).

Variable life insurance is a type of permanent coverage that allows policyholders to invest the cash value portion among various mutual fund-like sub-accounts. Policyholders have complete control over their investment options within the insurance product. The rewards can be great—but, like in all investing, so is the risk of loss.

Plans with a Purpose
Consumers are using the new range of permanent life insurance policies to pay for a variety of purposes during life, including as a source of cash to help finance college tuition and as a supplemental retirement plan. In the event of an untimely death, the proceeds provide the survivors with cash for education expenses or retirement needs.

Some individuals purchase life insurance with a death benefit specifically designed to offset one’s projected estate taxes liability. This provides the beneficiaries with the cash to pay the estate taxes due without having to quickly sell assets and suffer a great reduction in their inheritance. Others are using permanent life policies as a form of contribution to their favorite charity, naming the charitable organization as the owner and beneficiary of the policy. The donor then makes annual gifts to the charity to pay the premiums and deducts these gifts from his annual taxes as an itemized charitable deduction.

Selling Your Policy for Cash
Many policyholders may be unaware that they can even sell their no longer needed life insurance policies. Known as a “life settlement,” this kind of arrangement allows the policy owner to sell the policy for a percentage of the death benefit that is often greater than the cash value. The buyer becomes the owner and beneficiary of the policy, assumes payment of the premiums and collects the death benefit of the policy when the insured dies. “If you are considering selling your policy, consult with a trustworthy insurance broker or agent who knows your personal and financial needs,” Klein suggests.

For more information on the new life insurance option, including which plans may be best suited for your needs, contact Josh Klein at 800-321-2122 or via email at jklein.kornreich@niagroup.com.