Polychronis Financial

Income and Retirement Planning

Life Insurance

When you look to choose the proper amount of Life insurance, one should always take debt into consideration; such as mortgage, credit card, and auto loans. If you are the breadwinner, you may also want to calculate your annual income by 10-20 years.

Once you come up with a number, to cover all of this, then you chose what type of life insurance is suitable, based on affordability.


TERM LIFE:  Is the most affordable type of life insurance that you can purchase. You can buy a very large amount for very little cost. Term insurance is usually for a specified period of time. If you have a 30 year mortgage, a 30 year term product would be appropriate. The death benefit will remain level, as does the premium. At the end of the period, the policy will end. Most term policies are convertible to permanent plans, which we will discuss further on.


UNIVERSAL LIFE:  Is basically a term product with a side fund. So your premiums would be higher, but you would have cash value years on down the road. Universal life is very flexible, in that you can pay a lower premium after a few years of paying what most plans refer to as a target premium. Once the target premium is met, you may raise or lower premium based on your needs. Keep in mind that a universal life policy is made up of a yearly renewable term plan, so insurance costs will go up as you get older. So you need to be careful not to lower the premium to much, as it could affect the policy in later years.  You may also in later years lower or raise the coverage. By increasing the coverage, you will need to be medically under written. Loans are permissible, and cash withdrawals as well.


WHOLE LIFE: Typically covers you until age 100. While being the most costly of the three types of coverage, whole life has many advantages. Whole life is often used to help save for college for a child, while the protection is there should the premium payer deceases. Many whole life policies pay dividends, and the dividends can be reinvested back into the policy, where it may accumulate at interest, or even purchase additional insurance. Keep in mind that dividends are not guaranteed, and are based on three factors.

1)    Mortality

2)    Investments

3)    Overhead

If an insurance company keeps these three components in line, more often than not, there will be a dividend paid. Some companies offer what is called Non Par whole, which do not pay dividends. Dividend paying policies are usually a better benefit.


There is so much more to life insurance, but this should give you a brief understanding as to the types.