Frequently Asked Questions (FAQs)

Life Insurance
Frequently Asked Questions (FAQs)
Life Insurance FAQ | Capital for Life

Read our FAQs (Frequently Asked Questions) on life insurance solutions and discover the different ways you can protect your family and your business.

Whole Life Insurance
  • What is whole of life insurance?

    Whole life insurance is a type of permanent life insurance and is suitable for a person wanting life insurance cover in place for the rest of their life.

    A whole of life policy is guaranteed to pay out the death benefit (sum assured) as long as premiums are paid on time and for the rest of the insured's life. Premiums are paid monthly, quarterly, half-yearly or yearly.

    The guarantee of a pay out on death by the insurer makes whole of life insurance the most expensive type of policy to buy.

    Some permanent life policies have a cash surrender value, whilst others are designed to have no cash value.

  • What is universal life insurance?

    Universal life insurance is a type of permanent life insurance, also known as jumbo life insurance, because of the large amount of life cover it provides. A universal life insurance premium is used to pay for the life cover of the policy, with the rest going towards the savings part of the policy which has a cash value.

    Universal life policy premiums are typically paid in one lump sum up front, but most insurers offer a multi-pay option which allows the cost of the insurance premium to be spread over several years. Insurance companies will often allow multi pay premiums to be paid over 2 to 30 years. The life insurance company will charge a higher overall premium if the multi-pay option is chosen to compensate for not receiving all of the premium up front.

    Premium financing for universal life insurance allows the policy owner to finance up to 100% of the policy value. Universal life insurance policies are usually bought by high net worth individuals who want greater choice and flexibility in the investment part of their permanent life insurance policy.

  • What is indexed universal life insurance?

    Indexed universal life insurance is a type of permanent life insurance policy that offers life insurance coupled with a cash account that is linked to stock market returns. The policy premium is invested in an insurance company strategy that is designed to capture the upside potential of stock market investing. Policyholders who choose this option have their policies credited with the growth of a mix of indices selected by the insurance carrier. For example, the S&P 500 and the Hang Seng indices are popular choices for insurers to use. Unlike variable universal life policies, indexed universal life policies are designed to never fall in value simply due to stock market conditions.

    Most insurers also offer built-in guaranteed minimum interest rates to these types of policies which add a degree of certainty for buyers of indexed universal life insurance policies.

  • What is guaranteed universal life insurance?

    A guaranteed universal life policy (GUL) is guaranteed to last for the whole of your life. The policy has a cash value which can rise and fall, but a no-lapse guarantee is offered by the insurance company. This means that if the investment performance of the policy reduces the cash value to zero, the policy will continue to provide the death benefit.

  • What is variable universal life insurance?

    Variable universal life insurance is a type of permanent life insurance policy that offers life insurance coupled with an investment account that allows the policy holder to invest in a wide variety of funds and securities. Part of the policy premium is invested into an investment portfolio belonging to the policy with the remaining premium being used to pay for the life cover.

  • What are Indexed universal life insurance pros and cons

    Like an other permanent life insurance, Indexed universal life insurance has pros and cons. Here are some of the key benefits and disadvantages of indexed UL as its often known as.

    Pros

    1. Indexed universal life insurance is typically cheaper than standard universal life insurance or traditional whole of life insurance.
    2. Exposure to stock market index returns like the S&P 500, Hang Seng and Eurostoxx 50 typically give higher returns than conventional universal life insurance policies.
    3. 100% expsoure to market returns gives transpareny on investment returns. Also known as the participation rate.
    4. No stock market losses with life insurers providing policyholder with a 0% floor to protect their policy cash value.
    5. Minimum guaranteed returns, typically 1% to 2% a year, for the life of the policy offered by the insurer protects policyholders.
    6. Annual reset means your policy starting value begins at zero each year. You do not have to make up for stock market losses before benefiting from index gains.
    7. Premum payments are flexible meaning policyholders can delay payment of premiums without their policy stopping and leaving them without cover.

    Cons

    1. Indexed universal life does not offer the same guarantees as some types of whole of life insurance policies. Performance is linked to the indicies the policy tracks which is not guaranteed.
    2. Stock market returns are capped by the insurer meaning policyholders don't get all of the index upside. The cap is typically between 7% to 9% per year which is the maximum amount of interest the insurer will credit to your indexed policy.
    3. Cap rates can vary from year to year meaning the life insurance company can lower the amount it credits to your policy from the stock market returns it receives.
  • Can universal life Insurance be cashed in?

    Money can be taken from the cash value of a universal life insurance policy by way of a withdrawal or a loan. Withdrawals from the cash value of the policy can help provide income in retirement or support other needs of the policy owner. Withdrawals are usually allowed within limits set by the insurer and do not always reduce the life cover. Policy loans can also be taken in order to access the cash value of a life policy. Any loan amount will reduce the death benefit of the universal life policy payout, if it's still in place at the death of the life insured. However, unlike withdrawals, policy loans can be repaid and the full death benefit restored to the policy.

  • Is variable universal life insurance a good investment?

    Variable Universal Life (VUL) is a permanent type of life insurance policy, in which the cash value can be invested into shares, bonds and funds. The performance of these underlying investments will determine how good an investment into a variable universal life policy is viewed.

    9 factors that decide the performance of a variable univsersal life policy:

    1. Investment portfolio risk
    2. Higher portfolio running costs
    3. Active management of portfolio required
    4. More exposure to portfolio volatility
    5. No policy cash value guarantees
    6. Lower loan to value (LTV) for premium financing the policy
    7. Withdrawals and policy loans need more careful management
    8. Cost of insurance charged by the insurer
    9. Charges by the insurer to run the VUL policy

Term Insurance
  • What is term life insurance?

    Term life insurance is a basic life insurance policy that offers a cost-effective way of providing life cover for a fixed period of time. Term life insurance policies are typically taken out for between 1 and 25 years and used to insure a specific liability for a known timeframe. A term policy will pay out the sum assured (death benefit) if the life assured dies during the fixed term period. After the fixed term period ends, the life cover ends. Term insurance life cover has no cash value and accrues no investment value.

  • What is decreasing term life insurance?

    Decreasing term life insurance provides a declining level of term insurance cover throughout its fixed term. The sum insured (death benefit) reduces over the term of the life policy. Decreasing term life insurance is different to term life cover which provides a fixed level of cover throughout the term of the policy. A decreasing term life policy will be cheaper than a term life policy because the sum insured is reducing over the life of the policy rather than staying the same throughout the policy term. Decreasing term insurance reduces the risk of the insurer having to meet a claim for the initial sum assured because of the reducing cover.

  • Why use decreasing term life insurance?

    Decreasing term insurance offers a cheap and effective way of providing life cover on a reducing sum assured for a fixed period of time. Decreasing term insurance is used to cover a specific debt that is itself reducing over time, with the policy paying out in the event of the death of the life insured. The term is usually selected to align with the associated debt or liability that the life insured wishes to cover.

  • Examples of when to use decreasing term insurance

    Repayment Mortgages: Covering a repayment mortgage on a home loan can be achieved with a decreasing term insurance policy. The reducing level of life cover matches the reducing mortgage debt over a fixed period of time, typically up to 25 years. The decreasing term life policy should be selected to align with the mortgage term.

    Potentially Exempt Transfers: Covering large financial gifts of property, investment portfolios or cash to friends or family may be considered to be Potentially Exempt Transfers (PETs) under United Kingdom tax law. Gifts made under this rule are subject to a decreasing level of taxation over a 7 year period. Decreasing term insurance can be used to cover the fixed period under which taxation could occur on the gift if the donor died during the 7 years after having made the gift.

Cost of Life Insurance
  • How is premium calculated in life insurance?

    A life insurance premium is calculated during the underwriting process. The price, or premium, that you pay for your life cover is determined by:

    1. Age
    2. Gender
    3. Smoking status
    4. Medical history
    5. High risk hobbies
    6. International travel
    7. Country of residence
    8. Amount of life cover
    9. Type of life insurance policy

    Life Insurers use these factors and base their premium calculations on acturial models, which determine the price they are going to charge you for the amount of cover you are asking for.

    For example, a 50 year old male smoker will usually have a higher premium to pay for his life insurance policy, than a 50 year old female non smoker.

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