Life Insurance
Which Type of Life Insurance Is Right for You?
From basic protection to retirement income — here's what each product means.
Life Insurance
Term Life
Coverage for a fixed period (10–30 years). Pays a death benefit if you pass during the term — no cash value accumulation.
- Lowest premiums for highest coverage
- Renewable or convertible options available
- No savings or investment component
Whole Life
Permanent coverage with a guaranteed death benefit and a cash value component that grows at a fixed rate.
- Level premiums for life
- Guaranteed cash value growth
- Can borrow against policy value
Universal Life
Permanent coverage with flexible premiums and an adjustable death benefit. Cash value earns interest linked to a declared or indexed rate.
- Flexible premium payments
- Adjustable death benefit
- IUL variant ties growth to a market index
Popular choice
Variable Life
Permanent policy where cash value is invested in sub-accounts (similar to mutual funds). Both the death benefit and cash value fluctuate with market performance.
- Higher growth potential than whole or universal
- Investment risk is borne by the policyholder
- Sold by FINRA-licensed advisors only
Annuities
Fixed Annuity
The insurance company guarantees a set interest rate during accumulation, then converts to a predictable income stream in retirement.
- Guaranteed growth rate — no market risk
- MYGA variant locks rate for 3–10 years
- Tax-deferred accumulation
Variable Annuity
Accumulation value is invested in sub-accounts. Income in retirement depends on performance; optional riders can add income guarantees.
- Market-linked growth potential
- Optional GLWB / GMIB income riders
- Higher fees than fixed products
Fixed Indexed Annuity (FIA)
Growth is linked to a market index (e.g., S&P 500) with a 0% floor — you can't lose principal due to market downturns.
- Principal protection with upside participation
- Participation rates and caps apply
- Tax-deferred accumulation
Income Annuity (SPIA)
A Single Premium Immediate Annuity converts a lump sum into guaranteed income payments starting within 12 months. Simple and predictable.
- Immediate, guaranteed income stream
- Life-only, joint, or period-certain options
- No cash value after annuitization
Not sure which fits your situation? Life insurance and annuities serve different goals — protection, accumulation, and income. A free consultation can map the right product to your timeline and risk tolerance.
Key Life Insurance & Annuity Terms Explained
Tap any term to see a plain-English explanation.
Life Insurance Basics
Life Insurance+
A contract between you and an insurance company. In exchange for regular premium payments, the insurer agrees to pay a lump sum — called a death benefit — to your chosen beneficiaries when you pass away. Life insurance is designed to replace your income, cover debts, fund education, or leave a financial legacy for the people who depend on you.
Example: You take out a $500,000 policy. If you pass away while the policy is active, your spouse receives $500,000 tax-free.
Example: You take out a $500,000 policy. If you pass away while the policy is active, your spouse receives $500,000 tax-free.
Death Benefit+
The amount of money paid to your beneficiaries when you die. It is generally received income tax-free. The death benefit is the core purpose of a life insurance policy and can be used for anything — funeral expenses, mortgage payoff, income replacement, or inheritance.
Example: Your $250,000 death benefit allows your family to pay off the mortgage and cover living expenses for several years.
Example: Your $250,000 death benefit allows your family to pay off the mortgage and cover living expenses for several years.
Beneficiary+
The person or entity you designate to receive the death benefit when you pass away. You can name multiple beneficiaries and assign percentages to each. There are two types: a primary beneficiary receives the benefit first, and a contingent beneficiary receives it if the primary is deceased or unable to collect.
Example: You name your spouse as primary beneficiary (100%) and your two children as contingent beneficiaries (50% each).
Example: You name your spouse as primary beneficiary (100%) and your two children as contingent beneficiaries (50% each).
Premium+
The amount you pay — monthly, quarterly, or annually — to keep your life insurance policy active. Premiums are based on factors like your age, health, coverage amount, and policy type. Term life premiums are fixed for the length of the term; permanent policy premiums may be flexible or level for life.
Example: A healthy 35-year-old might pay $30–$50/month for a $500,000 20-year term policy.
Example: A healthy 35-year-old might pay $30–$50/month for a $500,000 20-year term policy.
Cash Value+
A savings or investment component found in permanent life insurance policies (whole life, universal life, variable life). A portion of each premium payment goes into this account, where it grows over time — either at a guaranteed rate, a market-indexed rate, or based on investment sub-accounts. You can borrow against it, withdraw from it, or use it to pay premiums. Term life policies do not have cash value.
Example: After 15 years, your whole life policy has accumulated $40,000 in cash value. You take a loan against it to help fund a home renovation.
Example: After 15 years, your whole life policy has accumulated $40,000 in cash value. You take a loan against it to help fund a home renovation.
Policy Loan+
A loan taken against the cash value of a permanent life insurance policy. Unlike a bank loan, there's no credit check or approval process — you borrow from your own policy. Interest accrues on the loan, and if it goes unpaid, it reduces the death benefit. If the loan balance exceeds the cash value, the policy may lapse.
Example: Your policy has $50,000 in cash value. You borrow $20,000 for a business investment. The loan stays in place until you repay it or it's deducted from the death benefit.
Example: Your policy has $50,000 in cash value. You borrow $20,000 for a business investment. The loan stays in place until you repay it or it's deducted from the death benefit.
Surrender Value+
The amount of cash you receive if you cancel (surrender) your permanent life insurance policy before it matures or before you pass away. It equals the cash value minus any surrender charges, which are fees that typically decrease over time and disappear after a set number of years.
Example: Your policy has $30,000 in cash value but a $2,000 surrender charge in year 5. If you cancel, you receive $28,000.
Example: Your policy has $30,000 in cash value but a $2,000 surrender charge in year 5. If you cancel, you receive $28,000.
Underwriting+
The process an insurance company uses to evaluate your risk and determine whether to approve your application — and at what premium rate. Factors include your age, health history, lifestyle, family medical history, occupation, and hobbies. Some policies offer simplified or no-exam underwriting for smaller coverage amounts.
Example: A smoker in their 50s will face a higher premium than a non-smoking 30-year-old because the underwriter sees them as a higher risk.
Example: A smoker in their 50s will face a higher premium than a non-smoking 30-year-old because the underwriter sees them as a higher risk.
Contestability Period+
A standard 2-year window after a policy is issued during which the insurance company can investigate and potentially deny a claim if it finds misrepresentation or fraud on the original application. After 2 years, the policy is considered incontestable and the death benefit must be paid regardless (except in cases of fraud).
Example: If you failed to disclose a health condition on your application and pass away within the first 2 years, the insurer can review and potentially deny the claim.
Example: If you failed to disclose a health condition on your application and pass away within the first 2 years, the insurer can review and potentially deny the claim.
Rider+
An optional add-on to your life insurance policy that customizes or enhances your coverage — usually for an additional cost. Common riders include:
- Waiver of Premium: Waives your premiums if you become totally disabled
- Accelerated Death Benefit: Lets you access part of your death benefit early if diagnosed with a terminal illness
- Child Term Rider: Adds small life insurance coverage for your children
- Guaranteed Insurability: Allows you to purchase additional coverage later without a medical exam
- Return of Premium: Refunds all premiums paid if you outlive a term policy
Term vs. Permanent Life Insurance+
The two main categories of life insurance:
Example: A young family might use a 20-year term to cover the years their children are at home, then convert to permanent coverage later.
Term Life
Coverage for a set period — typically 10, 20, or 30 years. Pays the death benefit only if you pass during the term. No cash value. Lowest cost for the most coverage.
Best for: Income replacement, mortgage protectionPermanent Life
Coverage that lasts your entire life as long as premiums are paid. Includes a cash value component that grows over time. Types include whole life, universal life, and variable life.
Best for: Estate planning, lifelong needs, wealth buildingVariable Life & Investment-Linked Policies
Variable Life Insurance+
A permanent life insurance policy where the cash value is invested in sub-accounts — similar to mutual funds — chosen by the policyholder. Both the cash value and death benefit can fluctuate based on market performance. Variable life policies are considered securities and must be sold by a FINRA-licensed advisor.
Example: You allocate your cash value across a stock sub-account and a bond sub-account. In a strong market year, your cash value grows significantly — but it can also decrease in a downturn.
Example: You allocate your cash value across a stock sub-account and a bond sub-account. In a strong market year, your cash value grows significantly — but it can also decrease in a downturn.
Sub-Accounts+
The investment options within a variable life or variable annuity product. Sub-accounts function similarly to mutual funds — each one holds a portfolio of stocks, bonds, or other assets. You choose how to allocate your money among the available sub-accounts, and your cash value grows or declines based on their performance.
Example: Your variable annuity offers 20 sub-accounts. You put 60% in a large-cap stock fund, 30% in a bond fund, and 10% in a money market fund.
Example: Your variable annuity offers 20 sub-accounts. You put 60% in a large-cap stock fund, 30% in a bond fund, and 10% in a money market fund.
Indexed Universal Life (IUL)+
A type of permanent life insurance where the cash value growth is tied to the performance of a market index — such as the S&P 500 — without directly investing in it. Your gains are subject to a cap (maximum rate of return) and your losses are protected by a floor (usually 0%), meaning you won't lose cash value due to market declines.
Example: The S&P 500 gains 18% in a year, but your IUL has a 12% cap — you're credited 12%. If the index loses 10%, your floor of 0% protects you from any loss.
Example: The S&P 500 gains 18% in a year, but your IUL has a 12% cap — you're credited 12%. If the index loses 10%, your floor of 0% protects you from any loss.
Participation Rate+
In indexed products (IUL or Fixed Indexed Annuities), the participation rate determines how much of the index's gain is credited to your account. A 80% participation rate means if the index earns 10%, you are credited 8%.
Example: Your FIA has an 85% participation rate. The S&P 500 gains 10% — you receive a credit of 8.5% on your account value.
Example: Your FIA has an 85% participation rate. The S&P 500 gains 10% — you receive a credit of 8.5% on your account value.
Cap Rate & Floor+
In indexed life and annuity products, the cap rate is the maximum interest you can be credited in a given period, regardless of how high the index climbs. The floor is the minimum — usually 0% — meaning you won't be credited a negative return even if the market drops.
Example: Your policy has a 10% cap and 0% floor. The index gains 15% — you're credited 10%. The index drops 20% — you're credited 0%, and your principal is protected.
Example: Your policy has a 10% cap and 0% floor. The index gains 15% — you're credited 10%. The index drops 20% — you're credited 0%, and your principal is protected.
Annuities
Annuity+
A contract with an insurance company designed to help you accumulate money for retirement and/or convert a lump sum into a guaranteed income stream. Unlike life insurance — which protects against dying too soon — an annuity protects against outliving your money (longevity risk). Annuities grow tax-deferred, meaning you don't pay taxes on gains until you withdraw.
Example: You invest $100,000 in an annuity at age 55. By retirement at 65, it has grown to $160,000 — and you can turn it into monthly income for life.
Example: You invest $100,000 in an annuity at age 55. By retirement at 65, it has grown to $160,000 — and you can turn it into monthly income for life.
Accumulation Phase vs. Distribution Phase+
All annuities go through two phases. During the accumulation phase, your money grows tax-deferred inside the contract. During the distribution phase (also called the payout phase), you begin receiving income — either in a lump sum, scheduled withdrawals, or annuitized payments for life.
Example: You fund an annuity from age 45–65 (accumulation), then begin monthly income payments at 65 (distribution).
Example: You fund an annuity from age 45–65 (accumulation), then begin monthly income payments at 65 (distribution).
Annuitization+
The process of converting your annuity's accumulated value into a series of regular income payments. Once annuitized, the contract is typically irrevocable — you give up control of the lump sum in exchange for guaranteed income. Payment options include life only, joint life, or period certain.
Example: At retirement, you annuitize a $200,000 contract into monthly payments of $1,100 for the rest of your life.
Example: At retirement, you annuitize a $200,000 contract into monthly payments of $1,100 for the rest of your life.
Fixed vs. Variable vs. Fixed Indexed Annuity+
The three main types of annuities differ in how your money grows:
Example: A conservative retiree might choose a fixed annuity for stability, while a 50-year-old still growing wealth might prefer an FIA for index-linked growth with downside protection.
Fixed Annuity
Grows at a guaranteed interest rate set by the insurer. No market risk. Predictable and stable. MYGAs (Multi-Year Guaranteed Annuities) lock in a rate for 3–10 years.
Best for: Conservative savers, pre-retireesVariable Annuity
Grows based on investment sub-accounts you select. Higher growth potential but also subject to market losses. Often includes optional income riders for guaranteed lifetime income.
Best for: Long-term growth seekersFixed Indexed Annuity (FIA)
Growth is linked to a market index (like the S&P 500) with a 0% floor — you can't lose principal due to market declines. Gains are subject to a cap or participation rate.
Best for: Moderate-risk clients near retirementSPIA (Income Annuity)
A Single Premium Immediate Annuity converts a lump sum directly into guaranteed income payments starting within 12 months. Simple with no cash value after annuitization.
Best for: Retirees seeking immediate incomeSurrender Charge Period+
A period — typically 5 to 10 years after purchase — during which you may be charged a fee if you withdraw more than a set amount (usually 10% per year) from your annuity. The surrender charge percentage generally decreases each year until it reaches zero at the end of the period.
Example: Your annuity has a 7-year surrender schedule starting at 7%. In year 3, you withdraw above the free withdrawal amount — you pay a 5% surrender charge on the excess.
Example: Your annuity has a 7-year surrender schedule starting at 7%. In year 3, you withdraw above the free withdrawal amount — you pay a 5% surrender charge on the excess.
Free Withdrawal Provision+
Most annuities allow you to withdraw up to a certain percentage of your account value each year — typically 10% — without incurring surrender charges. This gives you access to funds during the surrender period while still protecting the insurer from large early withdrawals.
Example: Your annuity value is $100,000. The free withdrawal provision allows you to take up to $10,000/year without penalty during the surrender period.
Example: Your annuity value is $100,000. The free withdrawal provision allows you to take up to $10,000/year without penalty during the surrender period.
GLWB — Guaranteed Lifetime Withdrawal Benefit+
An optional rider added to a variable or fixed indexed annuity that guarantees you can withdraw a set percentage of a "benefit base" (not your actual account value) every year for the rest of your life — even if the account runs to zero. The benefit base often grows at a set rate during the deferral period.
Example: Your benefit base grows to $200,000. With a 5% GLWB, you can withdraw $10,000/year for life — even if poor market performance drains the actual account value to zero.
Example: Your benefit base grows to $200,000. With a 5% GLWB, you can withdraw $10,000/year for life — even if poor market performance drains the actual account value to zero.
Tax-Deferred Growth+
One of the key benefits of annuities — your money grows without being taxed each year. You only pay taxes when you make withdrawals. This allows your gains to compound faster than in a taxable account. Withdrawals are taxed as ordinary income, and withdrawals before age 59½ may trigger a 10% IRS penalty on top of regular income taxes.
Example: $100,000 growing at 6% in a taxable account (25% tax bracket) grows more slowly than the same amount in a tax-deferred annuity — because no taxes are deducted from gains each year.
Example: $100,000 growing at 6% in a taxable account (25% tax bracket) grows more slowly than the same amount in a tax-deferred annuity — because no taxes are deducted from gains each year.
1035 Exchange+
A provision in the IRS tax code that allows you to transfer funds from one life insurance policy or annuity to another without triggering a taxable event. This is commonly used to move from an old, underperforming product to a newer one with better terms — without losing your tax-deferred status or paying taxes on gains.
Example: You have an old annuity with $80,000 in accumulated gains. Through a 1035 exchange, you roll it into a new annuity with better income riders — no taxes owed on the transfer.
Example: You have an old annuity with $80,000 in accumulated gains. Through a 1035 exchange, you roll it into a new annuity with better income riders — no taxes owed on the transfer.
Do I Need Life Insurance?
5 Reasons You Need Life Insurance
It's not just for older adults — here's why it matters at every stage of life.
1
Replace your incomeIf you pass away unexpectedly, life insurance ensures your family can cover everyday expenses without your paycheck.
2
Pay off debts & your mortgageDon't leave your family responsible for your mortgage, car loans, or credit card debt. Life insurance can cover it all.
3
Cover final expensesFunerals and end-of-life costs average $10,000–$20,000. A policy ensures your family isn't burdened financially during an already difficult time.
4
Lock in low rates while you're youngLife insurance is significantly cheaper when you're young and healthy. Waiting even 5 years can double your premiums.
5
Leave a legacyLife insurance lets you leave something meaningful behind — whether that's paying for your grandchildren's education or donating to a cause you care about.
Life Insurance Needs Calculator
Answer a few questions to estimate how much life insurance coverage your family may need.
Your Income & Dependents
Annual income
Your gross yearly income
$
Years of income to replace
Typically 10–20 years
Number of children
Under age 18
College funding per child
Estimated cost (0 if not applicable)
$
Debts & Expenses
Mortgage balance
Remaining amount owed
$
Other debts
Car loans, credit cards, student loans
$
Final expenses
Funeral, medical bills (typically $15,000–$25,000)
$
Existing Assets (reduces coverage needed)
Current savings & investments
Savings, 401k, brokerage accounts
$
Existing life insurance
Coverage you already have in place
$
Estimated life insurance needed
$0
How we calculated this
Income replacement ( yrs)$0
College funding$0
Mortgage balance$0
Other debts$0
Final expenses$0
Less: savings & existing coverage−$0
Carriers Cara works with for life insurance:
Foresters
Americo
Mutual of Omaha
Aflac
Gerber Life
John Hancock
This is an estimate. Book a free consultation with Cara to find the right policy and carrier for your specific situation.
Book a Free ConsultationThis calculator provides an estimate only and does not constitute financial or insurance advice. Individual needs vary. Speak with a licensed insurance professional for a full needs analysis.