Life Insurance

In general there are two types of life insurance: Term Life Insurance and Permanent Life Insurance.

Term insurance is designed and price to replaced lost income resulting from premature death. The word "term" relates to the premium. At the end of each "term", the premium rate increases. Group term insurance is priced in five year age bands. As we age from one age band to the next, there is a premium increase. The premium increase is small when we go from the 25 - 29 age band to the 30 - 34 age band. However, each subsequent term has a greater premium increase. We describe it as walking up a staircase. Each stair is a five year term. Each step is a premium increase. However, rather than each step being the same size, with group term insurance each step (rate increase) is greater than the previous. As a result, term insurance is inexpensive when we are young, but expensive when we hit our late 50s and 60s. Term insurance normally gets so expensive that we drop it prior to or at retirement. If we keep it, the insurance company will begin to decrease the death benefit at age 65 or 70, ultimately decreasing the death benefit to 50% of the original amount. Again, term insurance is designed and priced to replace lost income should an individual die prematurely. A minority of us will die prematurely and, if we have a family, term insurance provides the peace of mind that our family will be provided for should we die prematurely. If we don't, the premiums will increase to the point we will drop the coverage and get nothing back for the premiums paid. If an employee chooses to keep term insurance when he/she leaves the company or retires, the employee typically needs to apply to the insurance carrier to keep the insurance. Should they have health problems, the insurance carrier can decline their request to keep the insurance.

Permanent insurance is designed to pay a death benefit regardless of whether we die prematurely or in retirement. Permanent insurance differs from term insurance in a number of ways. With permanent insurance:

  • Premiums do not increase with age.
  • The death benefit remains level and never decreases.
  • Employees own the policy and can take the permanent insurance with them when they leave the company or retire. No health questions are required and the premium remains the same.
  • The policy builds cash value. Employees can borrow against the cash value. In retirement, the cash value can be used to get a "paid-up" policy. The employee has life insurance with no premium! .