LIFE INSURANCE AND YOU

I found this fascinating quote today:

PICKING A LIFE INSURANCE:1. TERM INSURANCE:A term insurance provides protection for a specific period of time. It pays a benefit only if anything happens to you during the term. Some term insurance policies can be renewed when you reach the end of a specific period which can be from one to twenty years (1-20). The premium rate increase at each renewal date. Many policies require that evidence of insurability be furnished at renewal for you to qualify for lowest available rates.2. PERMANENT INSURANCE:Permanent insurance provides life long protection and is known by a variety of names, described latter in this article. As long as you pay the necessary premiums, the death benefits will always be there. These policies are designed and priced for you to keep over a long period of time. If you do not intend to keep the policy for the long term, it could be the wrong type of insurance for you. Most permanent insurance policies including whole, ordinary, universal adjustable and variable life insurance have a feature known as “cash value” or “cash surrender value”. this feature which is not found in most term insurance policies, provides you with some options. You then can cancel or “surrender” the policy “in total or in part” and receive the cash value and a lump some of money, if you surrender your policy in the early years there may be little or no cash value. And if you need to stop paying premiums you can use the cash value to continue your current insurance protection for a specific period of time or provide a lesser amount or protection to cover you for as long as you are alive. Usually you may even borrow from the insurance company using the cash value in your life insurance as a collateral. Unlike loans from most financial institutions, and you ultimately must repay any loan with interest or your beneficiaries would receive a reduced death benefit.The cash value of many life insurance policies may be affected by your company’s future experience, including mortality rates, expenses and investment earnings. Keep in mind that with all type of permanent policies, the cash value of a policy is different from the policy face amount . Cash value is the amount available when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.Clemson, LIFE INSURANCE AND YOU, Nov 2008

You should read the whole article.

TYPES OF PERMANENT INSURANCE:

TYPES OF PERMANENT INSURANCE:

There are many different types of permanent insurance, the major once are described below…

1. WHOLE LIFE OR ORDINARY LIFE:
This variation of permanent insurance allows you, after your initial payment, to pay premiums at any time, In virtually any amount subject to certain minimums and maximums. You also can reduce or increase the amount of the death benefit more easily than under a traditional whole life policy.( to increase your death benefit you usually will be required to furnish the insurance company with satisfactory evidence of your continued good health).

2. VARIABLE LIFE:
This type of permanent policy provides death benefit and cash values that vary with performance of an underlying portfolio on investments. You can choose to allocate your premiums among a variety of investments which offer varying degrees of risk and reward stock, bonds, combinations of both, or accounts that provide for guarantees of interest and principal. You will receive a prospectus in conjunction with the sale of a variable product.
The cash value of a variable life policy is not guaranteed, and the life policyholder bears that risk. However, by choosing among the available fund options the policyholder can create an asset allocation that meets his or her objective and risk tolerance. Good investment performance will lead to higher cash value and death benefits. On other hand, poor investment performance will lead to reduce cash values and death benefits. Some policies guarantee that death benefits cannot fall below a minimum level. There are both universal life and whole life versions of variable life.

NOW WHAT ARE THE GOOD SIDE AND THE BAD SIDE OF
TERM AND PERMANENT INSURANCE:

1. TERM INSURANCE; GOOD SIDE:
Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest. It’s good for covering specific needs that will disappear in time, such as mortgages or car loans.

BAD SIDE:
Premiums increase as you grow older. As coverage may terminate at the end of the term or may become too expensive to continue. Generally the policy doesn’t offer cash value or paid-up insurance.

2. PERMANENT INSURANCE;GOOD SIDE:
As long as the necessary premiums are paid, protection is guaranteed for your entire life. Premiums cost can be fixed or flexible to meet personal financial needs. Policy accumulates a cash value that you can borrow against. (loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) you can borrow against the policy’s cash value to pay premiums or use the cash value to pay paid-up insurance. The policy’s cash value can be surrendered “in total or in part” for cash or converted into an annuity. ( An annuity is an insurance product that provides an income for a person’s life-time or for a specific period of time). A provision or “rider” can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurabity.