Life insurance of one type or another is a key element in your financial security.
It’s also important to those who survive you, whether you have a family, are single,
or are older and living alone. What life insurance you have, or should have, depends on
your situation and on your plans for the future.
There are two basic types of life insurance:
permanent insurance that provides protection for life; and term insurance that provides
insurance coverage for a specific number of years. Both types pay a death benefit if you
should die with the policy still in force.
Whole life is a common permanent policy that
provides a guaranteed death benefit, expressed as the face amount, for premiums that are
usually guaranteed to remain level regardless of age or health changes throughout your
life. Whole life policies often pay dividends. These policies accumulate a cash value that
may be borrowed against, used to continue coverage if premiums are missed, or withdrawn.
Universal life is a permanent interest-sensitive
policy that is more flexible and is divided into basic insurance and an investment
account. You can decide how much goes into each and increase or decrease your premiums and
the death benefits within some limitations. Premiums and benefits can be readjusted at
specified times, depending on your insurance needs and on what choices you make in the
investment side of the policy.
Variable insurance contracts are another variation
of permanent life insurance. Premiums are usually guaranteed in these policies; however,
the cash values vary based on the performance of an investment fund or other index. The
death benefit consists of one part that is guaranteed and a second part that varies,
depending on the fund’s performance, subject to a guaranteed minimum.
Term-to-100 policies are often seen as permanent
insurance but their main characteristics are similar to other term insurance policies.
Most term-to-100 plans don’t build cash values or pay dividends. They provide a death
benefit to age 100, if the policy is kept in force, and have level premiums, regardless of
changes in age or health.
Basic term insurance policies are generally for a
specified period, such as one, five, 10 or more years, or to a specified age. These
contracts tend to have lower premiums while the life insured is young, but when renewed
for an additional term period, the premiums can rise significantly. Term policies are
ideal to cover large obligations over a short period when funds available for insurance
are small. Most term policies can be converted to a permanent policy under certain
conditions.
Because of the many options available in life
insurance policies, a knowledgeable, trained life insurance advisor is invaluable in
finding the right policy to meet your present and future needs most effectively.
