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eINDEPENDENT 01/13/2012

Understanding the Differences Between Life Insurance Products

If you are involved with a wholesale life insurance brokerage, your success is contingent upon your ability to interact with your customers, your passion for your craft, and most importantly, your product knowledge of the insurance you are selling.

There are two main types of life insurance: term and whole life (whole life includes subtypes including variable and universal life). While all types of insurance have commonalities, there are important distinguishing factors. Selecting the right policy for your client can make the difference between a policy that properly fits their needs and one that is not what they truly need. Understanding the differences between life insurance products plays a paramount role in your ability to help clients decide which policies are appropriate for their unique needs. Below are a few key differences to help you successfully guide your clients.

  1. The length of time an insurance policy is active for is a major distinguishing factor between types of insurance. For example, term life insurance policies are active for a set period of time or “term” set by the customer and their insurer. Once the term ends the policy expires. Common term lengths are 10,15, 20 and 30 years. Whole life insurance policies, on the other hand, are active for the customer’s entire life span.
  2. Generally speaking, coverage amounts vary greatly depending on how a policy is designed and the type of life insurance policy a person chooses. Applicants can choose coverage amounts to fit their needs. For example, one individual may choose to purchase a policy for half a million to cover their mortgage and related expenses, while another applicant may choose a more modest coverage amount to pay off smaller debts. For plans that offer a cash value in addition to the actual base coverage amount, age and premium cost can also play a role in determining the policy’s overall coverage amount.
  3. Where the premium funds can be allocated is another huge difference in policies. With universal life insurance, the insurance company will invest the savings and your client will typically be able to defer those funds on his or her tax return. Variable life insurance, on the other hand, allows your client to set a percentage of the policy premium to go into a separate investment account. This allows those funds to appreciate tax-free until they are needed.
  4. Death benefits are a big dividing line among life insurance plan options. With universal life insurance, there will generally be two death benefit options: either your client can receive the policy’s cash value, or the initial amount of the policy plus any additional cash value that may have accumulated. Whole life insurance offers a guaranteed cash value for the policy that your client can borrow from before death, which for many people is a huge life benefit as well. Term life insurance offers no such option.

No matter what your clients need from your wholesale life insurance brokerage, if you are able to explain the difference between life insurance products and specific policies clearly and succinctly, you will be well on your way toward helping them make a solid choice for their future.