When considering the purchase of life insurance, there are two primary types of coverage that are available in the marketplace. These are term and permanent. Should you buy term or whole life insurance?
In some cases, it is certain that one type or the other will fit a buyer’s needs.
In other situations, though, there may be a reason to combine the features of both types of policies to cover specific needs.
Combination life insurance policies are very flexible types of coverage that can build on both the traditional design and guarantees, along with flexibility and variety concerning premium payment and coverage options.
In addition to just death benefit proceeds, the combination of term and permanent life insurance can help in providing an accumulation of cash that is tax-deferred and that can also be used in order to pay for emergencies or other types of unexpected costs that may come up during the policy holder’s life.
Therefore, combining the different types of life insurance coverage can help certain policyholders in placing more of an emphasis on either the accumulation or the protection aspects of the policies.
When you’re shopping for life insurance protection, it’s important that you get the perfect coverage, but that can be a confusing process.
Life Insurance Policy Holder Benefits
Life insurance policyholders who have a whole life insurance policy that is combined with a term life insurance policy can actually end up having a higher death benefit for their premium than if they had purchased only a whole life insurance plan – while also building up a substantial, and guaranteed, cash value component over time.
If a policyholder at some point becomes unable to pay their premiums for the policy, they may even draw upon their cash value to make additional premium payments and keep the policy in force.
Life Insurance Benefits for Business Owners
Those who are business owners can also benefit from combining term life insurance with a permanent type of policy.
Combining policies can help in providing security and value in various types of business situations that call for a key person, a buy-sell agreement, or a split-dollar type of retirement savings arrangement.
This has been a major draw for AICPA life insurance policies, but you can get the same benefit from standard insurance if you are an accountant.
Combining term life insurance with permanent coverage allows business owners – especially those who own small businesses – the extra flexibility in meeting their unique life insurance coverage needs.
Therefore, depending upon the situation of the specific business owner or partner, combining policies may be used for a variety of different situations where there is a business need for funds following the death of the policyholder.
Setting Up a Combination Life Insurance Plan
It will require some planning to set up a combination life insurance plan. For example, the type of policy – as well as the length of time that this coverage will stay in force – will depend upon the individual factors and needs of the policyholder.
As another example, for shorter-term needs, a term life insurance policy with a duration of five or ten years may be sufficient.
However, for those with longer-term needs, a term life insurance policy with a duration of anywhere between fifteen and thirty years may provide a better solution.
Similar to any other type of life insurance planning, though, you will still need to answer specific questions regarding your coverage needs to set up the proper type of plan.
For example, we had a client with a FEGLI policy that had way too small of a death benefit. They should have determined how much coverage they may need to pay off debts and/or to provide income for your survivors.
Remember to factor in inflation and how it may affect the future needs of your survivors.
Also, you will also need to decipher the amount of estate taxes that may be due on your estate.
Allowing your family the peace of mind in knowing that these taxes will be covered is a huge component of buying life insurance.
Other potential factors may include whether you want funds to be set aside for the future education of children, as well as whether you would like to donate any of your life insurance proceeds to a favorite charity.
The answers to these questions will help you in narrowing down a more exact amount of policy proceeds that may be needed.
Other Options for Combining Different Types of Life Insurance
For those who would prefer to have only one life insurance policy in force – yet receive the same type of benefit that they would receive by obtaining a term and a permanent plan – there are other options.
For example, universal life insurance policies are technically similar to having a term life policy that is coupled with a savings portion.
And, variable universal life insurance policies are essentially similar to having a whole life insurance policy that is combined with an investment component.
These have been particularly popular for people getting life insurance for parents.
This way their parents cannot outlive the death benefit and they get the advantages of the investment.
How to Convert From Term to Permanent Life Insurance
In some cases, a person may have term life insurance and it will be possible to convert that policy over to a permanent policy.
If this makes sense for your situation – and the term policy that you have allows conversion – this could be a viable solution for your needs.
When considering the conversion from term to permanent life insurance coverage, it is a good idea first to review the features of the permanent policy you are moving into.
This means determining which policy will offer you the best benefits for the best premium cost.
First, decide if conversion makes sense for your life insurance needs. This means calculating the needs of your beneficiaries and then determining the amount of premium that you will be charged on the new policy about your current insurance coverage.
Next, carefully read over the section of your term policy titled “Right to Convert.” This will give you a better idea of what types of permanent life insurance coverage your current insurance company will allow.
Oftentimes there is paperwork involved in the policy conversion process, so make sure that you receive copies of everything that you have signed, as well as a good idea of the time frame involved before the conversion will be completed.
Once you receive your new policy, be sure to read it over carefully in order to verify that it was in fact issued according to your needs.
There are several factors to keep in mind when considering the conversion from term to permanent life insurance coverage. First, the earlier you convert your policy, the lower the premiums on your new permanent policy are likely to be.
Also, once you have started the conversion process, you should still continue to make the premium payments on your current policy in order to keep that coverage in force – just in case you need it.
When converting to a new policy, it may be a good time to consider any changes in your beneficiary designations. These changes could be based on any life changes you have encountered such as marriage, divorce, or the birth of a child.
Taking the Next Step to Purchase the Coverage That You Need
When you’re ready to purchase the life insurance coverage that you need, we can help. We work with many of the best life insurance companies in the market and are here to help you in comparing policies and finding the best premium quotes.
In order to get the process started, simply fill out the form on this page. If health issues are a problem, don’t let them be.
There are companies who offer the best no medical exam life insurance.
If you have any questions along the way regarding what type of life insurance may best fit your needs, or if you need assistance in obtaining a premium price, please feel free to fill out the quote form on this page.
We understand that the search for the right life insurance protection can be a daunting task. No one wants to think about their death, but it’s vital that you plan for the worst.
Everyone is going to die. It’s depressing, but not planning for it could leave your family with a whole world of problems.
Not only would they have to get through the emotional pain, but they would also be stuck with financial problems as well.