So far on the Aspen Life Settlements blog, we’ve talked mainly about whole life insurance and term life insurance. While these are definitely the most common policies in use today, there are other options available in the life insurance world, too.
If you’re looking to change or sell your whole life policy and switch to something more affordable, you’re in the right place. This post can help shed light on a couple of these other options. (Both their benefits and the reasons you might want to steer clear!) Plus, Aspen Life is perfectly suited to buy your unwanted whole life or IUL policy–while allowing you to keep your death benefit–a deal you won’t find anywhere else.
Return of Premium Life Insurance
“Return of premium” isn’t a misleading name. Return of premium is a kind of term life insurance that allows you to receive the amount you paid in premiums back if you outlive the term of the policy. Alternatively, upon the death of the insured, a portion of the paid premiums can be paid to beneficiaries in addition to the death benefit.
With “normal” term life insurance, your insurer keeps the money you pay in premiums, whether they end up paying out a death benefit or not. With the return of premium life insurance, you get back exactly what you paid in at the end of the term–without interest. As you might expect, these kinds of policies do cost more than a “normal” term policy.
Because no interest is gained on the premiums you pay when they are returned, a better financial option might be to pay for the cheaper term life insurance and invest the difference in something safe and stable that will accrue interest. You may not get your premiums back, but having some of your money available to work for you will likely become more profitable in the long run.
Variable Life Insurance
A variable life insurance policy is one of the more complicated policy types out there. Where a whole life policy collects cash value and pays interest and dividends, a variable policy instead gives you the option to invest a portion of your premiums in as many as 50 different possible investments. When those investments do well, your “cash value” grows — tax-free — and often at a higher rate than the conservative growth of a whole life policy.
The downside of a variable life insurance policy, then, is the additional risk. Things are great when the market is doing well, and your investments are paying off. But when the market goes down, so does the value of your policy–a risky thing to gamble your life insurance on. These policies generally need more funding than most to remain effective, and on top of that, their premiums aren’t fixed. This means that as you age and the risk increases for your insurer, the size of your premium payments can increase.
For those unphased by the higher cost and risk, the possibility of substantial tax-free growth can be very appealing. (Although the much safer Flex Method might be a more compelling option for this crowd.)
Universal Life Insurance
Universal life policies, like variable and whole life policies, are referred to as permanent life insurance. Universal life policies are unique, however, in the flexibility that they offer. Where a whole life policy has a fixed premium throughout the duration of the policy, and a specific death benefit that may grow over time, a universal life policy allows you to change the size of the death benefit–which, in turn, can increase or decrease your premiums. (Subject to a medical exam in some cases.)
Like variable and term insurance, however, Universal Life policies’ premiums (or the cost of insuring you) will increase as you age. Whole life policies are the only ones that provide an unchanging premium throughout the lifetime of the policy.
While Aspen Life is primarily interested in purchasing unwanted whole life policies, we are also interested in some IUL policies–indexed universal life insurance–a specific kind of universal life policy that allows the insured to connect the value of their policy with a stock market index like the S&P 500. It might make sense to compare an IUL to variable life Insurance, but an IUL doesn’t actually invest the cash value in the stock market but derives the interest rate it grows at from it. Insurers will put a cap on how much you can earn this way–because they want to take a cut, too–but they also put a “floor” on how much you can lose, ensuring that your cash value never decreases, even if it only grows at a rate of 0-1%.
As with other universal life policies, IULs don’t guarantee premiums will remain the same as you age. Additional fees and charges associated with the policy can add up, too–especially when you’re just getting started.
Those looking to end or sell their policies might benefit from finding another way to remain insured–perhaps through a simple term life insurance policy.
For those with an unwanted IUL or Whole Life Policy, give us a call! Surrendering your policy will terminate your coverage. Instead, we’ll pay cash for it–and let you keep the death benefit without you needing to pay another penny in premiums.