Home  >>  Financial Planning  >>  Individual Planning  >>  Financial Planning D...  >>  Tools to achieve you...  >>  Tax Sheltered Annuit...  >>  Definitions

Definitions

Decreasing Term Level premiums and decreasing death benefit. No cash accumulation. Frequently used for short-term decreasing financial liabilities, like a mortgage, which decreases over time.

Annual Renewable Term Increasing premiums with level death benefit. No cash accumulation. The strength of term is its low cost for large death benefits, particularly beneficial to younger families with limited resources and the need for maximum protection. Level Term Premiums stay level for stated term, usually 5, 10, 15 or 20 years. Level death benefit. No cash value. The need? Frequently used to cover short or intermediate term obligations. One reason for recent popularity is that level premiums promote budgeting of known cost in the future.

Permanent (Ordinary Life or Whole Life) Premiums and death benefit are level. Cash accumulation. The need? To provide for long-term needs, such as to provide survivor income for a spouse or minor children. Other uses could include paying off debt and paying estate taxes.

Universal Life Premiums and death benefit are flexible. The monthly cost of insurance and administrative charges are deducted, the balance of the premium going to cash values. The need? Similar to Permanent above. Cash values can increase based on current interest rates.

Variable Life Premiums may be flexible. Death benefit may be flexible. Cash accumulation is directly affected by the performance of the investment accounts selected. The need? For long-term obligations as shown under Permanent. Client may wish to manage own death benefit and cash value account. Example: Allocate cash values among various types of investment divisions such as stocks, bonds, money market, etc. Cash values may increase or decrease depending on investment performance.

Single Premium Life A single premium paid at up front. Level minimum death benefit. Cash accumulation. The need? To provide for long-term security, and as a competitive investment option. Different tax rules generally apply.

First To Die Flexible premiums and death benefits. The need? To provide liquidity at the death of the first of two or more parties covered by the policy. Most often used in business insurance obligations.

Second to Die May have flexible premium with a level minimum death benefit. Most often used to pay death taxes and expenses due at the second death.