Life and Health Insurance Products
Life products
Term insurance provides death protection for a stated period and builds no cash value. Whole life is permanent, level-premium coverage with guaranteed cash value and nonforfeiture options. Universal life unbundles protection, expenses, and cash value; cost of insurance rises with age, so underfunding can cause lapse. Variable life and variable universal life shift investment risk to the owner and are securities. Annuities liquidate a sum into income; deferred annuities accumulate tax-deferred, while immediate annuities begin payouts now.
Health products
Disability income replaces a portion of earned income; long-term care covers custodial assistance; medical expense plans reimburse or pay providers; critical illness pays a lump sum on diagnosis. Group insurance is experience-rated and typically cheaper per unit than individual coverage.
Provisions and tax
Standard provisions include the grace period, reinstatement, incontestability (usually two years), suicide exclusion, misstatement of age, and policy loans. Death benefits are generally income-tax-free to beneficiaries; internal buildup is tax-deferred; loans and withdrawals can reduce the death benefit or create taxable income. Modified endowment contracts lose favorable withdrawal treatment. Annuities use an exclusion ratio to separate taxable and tax-free portions of each payment.
Traps and worked example
Traps: saying term has cash value; ignoring the rising cost of insurance in universal life; assuming all withdrawals are tax-free. Worked example: an annuitant invests $60,000 and expects 240 monthly payments of $500 ($120,000 total). Exclusion ratio = $60,000 ÷ $120,000 = 50%, so $250 of each payment is tax-free until basis is recovered.
Rule of thumb
Never compare a permanent policy's premium with term premium alone; compare death benefit, cash value, guarantees, and duration.