Blended life insurance basics
When it comes to life insurance, you have plenty of choices. Two popular forms of coverage are term life insurance and permanent life insurance. Term life insurance costs less than permanent life insurance and covers you for a certain period of time. A married couple with young children may take out a term life insurance policy to cover college tuition for their children in the event of their deaths or to cover funeral costs. Permanent life insurance doesn't expire after a set amount of years and can be used to cover a child with special needs who will need support after the death of the parents or to pay estate taxes, says Aaron Pinkston, president of Clarifinancial, a life insurance provider in Garner, N.C.
A blended life insurance policy starts out as a combination of term coverage and permanent coverage. Future dividends paid on the policy are used to convert the term coverage into permanent coverage. Let's say you need $500,000 in coverage. The policy can be designed so you have $250,000 worth of term insurance and $250,000 of permanent life insurance. Each year the amount of term will decrease and the amount of permanent will increase until eventually the policy will only be comprised of permanent coverage, says Scott Witt, an actuary and fee-only insurance adviser at Witt Actuarial Services in New Berlin, Wis.