Life Insurance Options

Cal Commercial Insurance offers a broad array of life insurance products and services from many well-known companies to help you determine your best path forward.

Some of the products we offer include:

• Term Life Insurance
• Whole Life Insurance/Final Expense
• Universal Life Insurance
• Indexed Universal Life Insurance
• Fixed Annuities
• Long Term Care Insurance
• Disability Insurance

Term Life Insurance

Term life insurance provides coverage for a set period of time, typically from five to 30 years or to a certain age, such as 65. This type of life insurance only pays a death benefit if the policyholder dies before the term is up. Term life policies are simpler and usually less expensive than whole and universal life. The downside is that if you outlive the term, unless you have purchased a return-of-premium term policy, you will receive nothing for all of the premium payments you've made.

The premiums for most term policies are generally lower in cost, compared to permanent life insurance policies. The term insurance premiums can change over time and usually rise with the policyholder's age. While some term life policies have premiums that are guaranteed not to change for a certain period, these policies are more expensive.

Term policies can often be renewed. However, the premium will likely go up with each renewal, especially if your health has declined in the meantime. Some insurance companies may require a physical exam before they allow you to renew, and some don't let you renew after a certain age.

A term policy can sometimes be converted into a cash-value policy during what is known as a conversion period. This probably will increase your premiums.

A term life insurance policy is usually best for someone who just wants to provide for their loved ones and doesn't have the time, inclination or budget to use the policy as a financial investment. Before choosing a policy, it's a good idea to talk to an agent who can help you determine what type of life insurance is best for meeting your specific needs.

Permanent Life Insurance

Unlike term insurance that is designed to provide death benefit protection for a temporary period of time, permanent life insurance has the potential to accumulate cash values on a tax-deferred basis. These values can be accessed during your lifetime to help address other expected, or unexpected, fiancial needs.

Whole Life Insurance

Whole life insurance provides coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. These policies are also known as “permanent” or “traditional” life insurance.

Whole life insurance guarantees payment of a death benefit to beneficiaries in exchange for level, regularly due premium payments. The policy includes a savings portion, called the “cash value,” alongside the death benefit. In the savings component, interest may accumulate on a tax-deferred basis. Growing cash value is an essential component of whole life insurance.

To build cash value, a policyholder can remit payments more than the scheduled premium. Additionally, dividends can be reinvested into the cash value and earn interest. The cash value offers a living benefit to the policyholder. In essence, it serves as a source of equity. To access cash reserves, the policyholder requests a withdrawal of funds or a loan. Interest is charged on loans with rates varying based on the insuring company. The owner may also withdraw funds tax free, up to the value of total premiums paid. Loans that are unpaid will reduce the death benefit by the outstanding amount. Withdrawals reduce the cash value but not the death benefit.

The death benefit is typically a set amount of the policy contract. Some policies are eligible for dividend payments, and the policyholder may elect to have the dividends purchase additional death benefits, which will increase the amount paid at the time of death. Alternatively, unpaid outstanding loans taken against the cash value will reduce the death benefit. Many insurance companies offer riders that protect the death benefit in the event the insured becomes disabled or critically or terminally ill. Typical riders include an accidental death benefit and waiver of premium riders.

Universal Life Insurance

Universal life insurance is permanent life insurance with an investment savings element and low premiums that are similar to those of term life insurance. Most universal life insurance policies contain a flexible-premium option. However, some require a single premium which would be a single lump-sum premium, or fixed premiums which are fixed premiums that follow a specific schedule.

A universal life insurance option provides more flexibility than whole life insurance. Policyholders can adjust their premiums and death benefits. Universal life insurance premiums consist of two components: a cost of insurance amount and a saving component, known as the cash value.

The cost of insurance is the minimum amount of a premium payment required to keep the policy active. It consists of several items rolled together into one payment. Cost of insurance includes the charges for mortality, policy administration, and other directly associated expenses to keeping the policy in force. Cost of insurance will vary by policy based on the policyholder’s age, insurability, and the insured risk amount. 

Collected premiums in excess of the cost of universal life insurance accumulate within the cash value portion of the policy. Over time the cost of insurance will increase as the insured ages. However, if sufficient, the accumulated cash value will cover the increases in the cost of insurance.

In a universal life insurance policy, the cash value earns interest based on the current market or minimum interest rate, whichever is greater. As cash value accumulates, policyholders may access a portion of the cash value without affecting the guaranteed death benefit.

However, policyholders who do will pay taxes on the withdrawals they make from the excess cash value of the universal life insurance plan. Also, depending on when the policy and premium payments are made, earnings will be available as either last in, first out, or first in, first out funds. Upon the death of the insured, the insurance company will retain any remaining cash value, with the beneficiaries only receiving the policy’s death benefit.

Universal life policyholders may borrow against the accumulated cash value without tax implications. If they do, interest will be calculated on the loan amount, and there will be a cash surrender fee. If the loan is unpaid, it will reduce the death benefit by the outstanding loan amount, including unpaid interest on the loan deducted from the remaining cash value.

A universal life insurance policy can have flexible premiums. Policyholders can remit premiums that are more than the cost of insurance. The excess premium is added to the cash value and accumulates interest. If there is enough cash value, policyholders may skip payments without the threat of a policy lapse.

It's very important for policyholders to be attentive to the rising cost of insurance as they age and plan accordingly. Depending on the credited interest, there may not be enough cash value to keep the policy in force. If this happens, they would be required to pay higher premiums. Missed payments must be paid within a specific time frame for the policy to remain in force.

Indexed Universal Life Insurance

Indexed universal life insurance is a type of permanent life insurance that can provide you with the potential to earn interest that is based in part on the positive movement of a stock market index. The amount of interest that is credited to your policy is typically subject to certain limitations. These limits may include cap rates, participation rates and strategy expense charges. Indexed universal life insurance also provides you with protection from negative market returns since zero is the lowest amount of interest that can be credited to the policy. 

Taken together, the upside potential and downside protection that indexed universal life insurance offers, is an attractive combination for anyone seeking the protection permanent life insurance provides.

Indexed universal life insurance is a type of permanent life insurance that can provide you with the potential to earn interest that is based in part on the positive movement of a stock market index. The amount of interest that is credited to your policy is typically subject to certain limitations. These limits may include cap rates, participation rates and strategy expense charges. Indexed universal life insurance also provides you with protection from negative market returns since zero is the lowest amount of interest that can be credited to the policy. 

With indexed universal life insurance, you can decide how your policy earns interest. You can select a fixed interest crediting strategy, indexed crediting strategies or a blend of multiple strategies. 

A fixed strategy uses a current interest rate, declared on an annual basis by the insurance company. Net premiums directed to the fixed strategy remain allocated to it for one year. At the end of the year, those premiums, along with interest that has been credited, can remain in the fixed strategy at the new annual interest rate or be re-directed to a different crediting strategy.

An indexed strategy uses a formula that calculates interest based in part on the positive movement of a stock market index. There are several indexed strategies available that provide different methods for calculating interest. 

While a stock market index is used to determine how much interest may be credited to your indexed universal life policy, your premiums and cash values are never invested directly in the stock market. Therefore, if the index goes down, the resulting interest credit to your policy would not be less than zero.

Indexed universal life insurance has policy charges that are deducted from the policy cash values every month. In years where the index returns are zero or negative, policy charges can cause the cash values of an indexed universal life policy to decrease.

Fixed Annuities

A fixed annuity is a type of insurance contract that promises to pay the buyer a specific, guaranteed interest rate on their contributions to the account. A variable annuity pays interest that can fluctuate based on the performance of an investment portfolio chosen by the account's owner. Fixed annuities are often used in retirement planning.

You can buy a fixed annuity with either a lump sum of money or a series of payments over time. The insurance company then guarantees that the account will earn a certain rate of interest. This period is known as the accumulation phase.

When the annuity owner, or annuitant, elects to begin receiving regular income from the annuity, the insurance company calculates those payments based on the amount of money in the account, the owner's age, how long the payments are to continue, and other factors. This begins the payout phase. The payout phase may continue for a specified number of years or for the rest of the owner's life.

During the accumulation phase, the account grows tax-deferred. When the owner begins receiving income, that money is taxed at their regular income tax rate. Annuity owners may also be allowed to make a limited number of withdrawals from the account before the payout phase begins.

Long Term Care Insurance

Long Term Care insurance is coverage that provides nursing-home care, home-health care, and personal or adult daycare for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. Long Term Care insurance offers more flexibility and options than many public assistance programs, such as Medicaid.

Many people are unable to rely on children or family members for support and buy long-term care insurance to help cover out-of-pocket expenses. Otherwise, long-term care expenses would quickly deplete the savings of an individual and/or their family.

While the costs of long-term care differ by region, it is usually very expensive. In 2019, for example, the average cost of a private room in a skilled nursing facility or nursing home was $102,200 a year, according to a report on long-term care by Genworth. A home health aide costs an average of $52,624 annually.

In the United States, Medicaid provides for low-income individuals or those who spend down savings and investments because of care and exhaust their assets. Each state has its own guidelines and eligibility requirements. In most states, you can keep up to $2,000 as an individual and $3,000 for a married couple outside of your countable assets, which include checking and savings account balances, CDs, stocks, and bonds. Your home, car, personal belongings, or savings for funeral expenses don't count as assets.

Long Term Care insurance usually covers all or part of assisted living facilities and in-home care. Medicaid rarely does. Full home care coverage is an option with Long Term Care insurance. It will cover expenses for a visiting or live-in caregiver, companion, housekeeper, therapist or private-duty nurse up to seven days a week, 24 hours per day, up to the policy benefit maximum.

References:

• Julia Kagan: "Long-Term Care (LTC) Insurance
• Genworth. "Genworth Cost of Care Survey 2019: Skyrocketing care costs may make the dream of aging at home more challenging." 
• U.S. Department of Health and Human Services. "Financial Requirements - Assets." 
• Haven Life. “What is Long-Term Care Insurance, What Does It Cover, and Is It Right for You?” 

Disability Insurance

Disability insurance is a type of coverage that replaces a portion of your monthly income if injury or illness prevents you from working. It provides financial security for you and any loved ones who may depend on your most valuable asset — your ability to earn a paycheck. You may also hear disability insurance referred to as disability income insurance or income protection.

There are two basic types of disability insurance.

• Short term disability insurance policies offer a worker a portion of their salary if they are unable to work for a short period—typically three to six months.
• Long term disability insurance offers a worker a portion of their salary if they are unable to work for a longer period—typically a period of over six months.

Both short term and long term disability policies have a period that a person must be disabled for before that individual is able to start receiving disability benefits. That period of time is called an elimination period. If a person becomes disabled, they must wait until the elimination period is over before they start receiving benefits. If they are able to work before the elimination period is over, the person will not receive a benefit.