If you’re shopping for life insurance, you may be wondering which types of policies may not have the automatic premium loan provision attached.
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Whole life insurance
Most whole life insurance policies available today come with an automatic premium loan provision attached. This provision allows the policyholder to take out a loan against the cash value of their policy if they find themselves in a situation where they are unable to make their premium payments. While this can be a helpful safety net, it is important to note that loans taken against a life insurance policy will accrue interest and will reduce the death benefit paid to the policy’s beneficiaries. Policyholders should only use this provision as a last resort and should make every effort to repay any outstanding loans before allowing their policy to lapse.
Term life insurance
Term life insurance may not have the automatic premium loan provision attached because it is a temporary policy. This type of policy only covers the insured for a set period of time, usually 10, 20 or 30 years. If the policyholder dies during that time, the beneficiaries will receive the death benefit. If the policyholder does not die during that time, the policy will expire and there will be no death benefit paid out.
Universal life insurance
If you have a universal life insurance policy, the automatic premium loan provision will not be attached.
Variable universal life insurance
Variable universal life insurance (VUL) is a type of permanent life insurance that offers both death benefit protection and the potential to build cash value. The cash value growth of a VUL policy is dependent on the performance of the underlying investment options, which may include stocks, bonds, and mutual funds. Because of this investment component, VUL policies are considered “variable” life insurance products.
While VUL policies can offer great flexibility and potential for cash value growth, they also come with greater risk than other types of permanent life insurance policies. This is due to the fact that the cash value growth of a VUL policy is not guaranteed and can fluctuate based on the performance of the underlying investment options. Additionally, VUL policies typically have higher fees and expenses than other types of permanent life insurance policies.
For these reasons, VUL policies may not be right for everyone. If you are considering purchasing a VUL policy, it is important to speak with a financial advisor to determine if this type of policy is right for you.
Variable life insurance
Variable life insurance is one type of permanent life insurance that does not have the automatic premium loan provision attached. Universal life, indexed universal life, and whole life insurance policies all have the automatic premium loan provision.
Indexed universal life insurance
Indexed universal life insurance is a type of permanent life insurance that offers the death benefit protection of whole life insurance with the flexibility and potential cash value growth of universal life insurance.
policyholders can participate in the gains of select stock market indexes while their money is shielded from any losses that may occur in those indexes. Indexed universal life also has a provision that will automatically loans the policyholder’s premiums if he or she misses a payment.
Survivorship life insurance
Survivorship life insurance, also known as second-to-die insurance, is a life insurance policy that covers two people and pays out a death benefit only when the second person dies. survivorship policies are typically used to help families pay estate taxes. Because the death benefit is not paid out until the second person dies, these policies often have lower premiums than traditional life insurance policies.