BB—Life Insurance Products

TERM INSURANCE. If an estate plan is to be built on a solid foundation, life insurance protection is essential. Term insurance provides protection for alimitedperiod of time. However, the premium for this protection will usually increase, until it becomes prohibitively expensive for most people to maintain. While term insurance can provide a lot of protection for a lesser cost, it builds no cash values and has no permanent values. While some term insurance is “convertible” to permanent coverage and can preserve insurability, it is important to understand the policy details pertaining to conversion because sometimes the ability to convert is limited in time or to certain (undesirable) products in the carrier portfolio. ”

WHOLE LIFE INSURANCE, in contrast to term insurance, provides for a tax-deferred build-up of cash values over the life of the contract. This cash value element, combined with level or limited premium increases, means that the death benefit will be available for anunlimitedperiod. While the outlay for permanent insurance, including whole life, is greater than term insurance in the early years, most plans provide for payment of a level premium. Typically, both the cash values and the death benefits are guaranteed, unless they are dependent upon payment of projected dividends.

UNIVERSAL LIFE INSURANCEoffers flexible premium payments, an adjustable death benefit, and cash values that are sensitive to current interest rates. Most contracts pay acurrent interest ratewhich can be higher than that available in the money market. However, these rates are subject to change and are not guaranteed over the life of the contract. The guaranteed interest rateis usually very modest and will likely result in a lapse of the policy if additional premiums are not paid. Likewise, most universal life policies offer lowercurrent (nonguaranteed) mortality charges, but provide for higherguaranteed mortalitycharges. Taken together, the lower guaranteed interest rate and higher guaranteed mortality charges represent the “down-side risk” of a universal life contract.