Life Insurance - Types of Whole Life Policies
Other Types of Whole Life
Joint and Survivor- Joint life and survivor insurance is a type of life insurance coverage for more than one person, typically couples. With joint life and survivor insurance, benefits are not paid until both of the policyholders have died. Lower premiums exist on these policies than on individual life policies because of the potential for a much longer period of time before the policy is called upon to pay benefits. Joint life and survivorship insurance is a tool often used to help pay estate taxes, because estate taxes can be delayed until both husband and wife die.
This can take two different forms; first-to-die or second-to-die with death benefits taking place at first or second deaths.
Family Income Policies- These policies are a combination of decreasing term and a form of whole life where the term insurance provides a monthly payment from the insured's death to some point in the future.
Modified Whole Life- During the first five years, the premium is slightly more than a term life premium, and then the premium increases to slightly above what a whole life premium would have been at original purchase.
Graded premium Whole Life- Policy that starts with a low initial premium and gradually increases annually or until it levels out.
Vanishing Premium- A participating whole life policy whose dividends are expected to cover all future premium payments.
Single Premium Life- Paid for by insured/owner in one single premium payment to pay a future benefit in the case of death. May have unfavorable tax consequences if it does not meet the 7-pay test required by the IRS. This may result in the policy being classified as a MEC (modified endowment contract) thus subjecting it to taxable income and possible early withdrawal penalties.
Credit Life- Credit life insurance pays the insured balance of your loan, up to the policy maximum, in the event of your death. This ensures your family will not be left with your loan debt and protects the lender from financial loss in the case of death before completing a loan debt.
Luis and Donna are in their mid-sixties and have been married for 30 years. They've accumulated a very nice estate together over the years, especially since the sale of their business five years ago. Their estate planning attorney determined that they will need an additional $2,000,000 of life insurance to help pay for estate taxes at their death. Luis has smoked cigars for 20 years and Donna has high blood pressure. What is the best policy considering their condition?
A. Variable universal life on Luis
B. Survivorship life using universal life
C. Term policy on Donna
D. First-to-die on Luis & Donna using variable whole life
The need here is to find the best policy to cover estate taxes. Estate taxes are due at the death of the second spouse, so a second-to-die or survivorship life policy would be the best choice. Just because Luis is a smoker and Donna has high blood pressure does not mean that they are uninsurable, they may just have higher premiums to pay because of their issues.