• Rotchford & Associates


Life insurance can be complicated and overwhelming. Here is a short list of the different types and the kind of person they may be right for…

Term: This is the cheapest form of life insurance out there. Why is that? Because the odds of the insured passing during the term are ~2%. These plans tend to be pure profit for insurance companies. Term only has a death benefit, no other features, and only pays out if the insured passes in that time. This is great for young families with children or a mortgage or both and can’t afford permanent insurance at the time.

Whole Life: On the opposite spectrum is the most expensive form of life insurance, but offers the most guarantees and has a cash value too. This is for families that have the money and want the guarantees, but for the fraction of the cost you can do almost the exact same thing with index universal life.

Index Universal Life: This gets a bit more complicated, but I’ll shoot for explaining as simply as possible. You have a two buckets, the death benefit and cash value. The cash value is dependent on certain allocations that you can choose from annually. Your allocations can be fixed or dependent on the stock market. Fixed is a specified interest rate and the allocations based on the stock market can fluctuate. If you choose your rate based on the stock market, you’ll get a percentage of what it increases over the year. If it goes down, the worst you can do is earn 0%. (Unless there’s a percentage cost to the allocation, but you shouldn’t be choosing those allocations anyways, but that’s a blog for another time.) Why the cash value is important to understand is that after the guarantees run out, the cash value is to make sure the policy continues for life. A lot has to go wrong for that not to happen so typically IULs are a cheaper alternative to whole life and last just as long.

Variable Universal Life: You thought the index universal was complicated just wait for this one! In short, where the index life has a cash value that goes up, but not down; variable is tied directly to the market and can go down. Not just the cash value, but the death benefit too. Anyways, we don’t offer or suggest these to clients so I don’t have much more to say on it aside from we don’t like them.

Guarantee Universal Life: Finally, an easy one to explain. Like term, there are no bells or whistles, it’s a straight death benefit policy. The difference between this and term is this policy lasts for life. Well, usually between 100 and 120 years old, so basically life. This is for families that don’t want complicated policies, but want permanent life insurance.

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