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Life Insurances
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Term insurance provides coverage for a limited "term" or period of time. Most insurance companies offer term insurance policies with terms from one to thirty years. If you die during the term period, the policy's death benefit is paid to your beneficiary. If you are alive at the end of the term period and wish to continue the coverage, you will have to reapply for an additional term of coverage. In order to renew your policy after its term is up, you may have to prove that your health has not significantly declined, and you will likely have to pay a higher premium rate for the new term. The frequency of increases in your premiums depends upon the term you select. If you purchase a one-year term policy, and you want to continue the coverage at the end of the one-year term, you have to reapply and most likely pay a higher premium. If you purchase a five-year term policy, and you want to continue the coverage at the end of the five-year term, you have to reapply and most likely pay a higher premium. However, the premium paid during the five-year term will remain the same throughout the term rather than increasing each year. Term insurance is a good product for individuals who need coverage against the possibility of their death for a short period of time. For individuals who want a long-term policy or want to combine investments with life insurance coverage, permanent life insurance may be more appropriate. Permanent life insurance is designed to provide coverage throughout your entire life rather than for a limited term. Individuals often choose permanent life insurance to cover expenses that will always be present, such as the cost of a funeral and other final expenses or to fund a charitable gift upon death. One of the primary differences between permanent and temporary life insurance is whether the policy creates a cash value, which is an investment value that you can access during your lifetime. The cash value, also referred to as the policy value, grows tax-deferred as long as the money remains in the insurance policy. There are several forms of permanent insurance policies including whole life, universal life, and variable universal life. Whole Life or Ordinary Life? A typical whole life, or ordinary life policy provides life insurance coverage for as long as you live or until age 100, whichever comes first. Upon your death, the death benefit to your beneficiary. When purchasing a whole life insurance policy, you know your premium amount and payment schedule, as well as your guaranteed policy value and guaranteed death benefit. The premium amount remains the same throughout the life of the policy. Policy values are determined from a formula regulated under state law. It is very important to select the right insurance company, as it will be managing the investment of the premiums for the guaranteed policy value. While this type of policy is reassuringly stable for many individuals, you should keep in mind that you will not be able to change your premium payment amount or your payment schedule if your financial circumstances change. Universal life is a flexible type of permanent insurance policy. It is similar to whole life insurance for it provides life insurance protection and builds policy value. However, universal life offers flexibility in the amount and timing of premium payments and builds policy values at rates that may be more favorable than whole life insurance. In a universal life policy, premiums go into a fund called the account value or the policy value. The company credits interest on that fund and makes periodic deductions of expense and risk charges. The credited interest rate is based on the company's expectation of future investment results and the risk charges are based on the company's expectation of future claims. The credited interest rate is never less than a stated minimum and the risk rates are never more than a schedule of maximum risk rates. The minimum interest rate and schedule of maximum risk rates are detailed in the life insurance contract. Expense charges in many universal life plans are fixed but some plans may state a maximum periodic expense charge and actually charge less. If the insurance company can continue to credit more than the guaranteed interest rate, and charge less than the maximum risk rate, a universal life product might be less expensive in the long run than a similar whole life plan. Sample Term Life Rates Assuming Best Health
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