Types of Life Insurance

TERM LIFE INSURANCE

Provides a death benefit for a fixed number of years. This type of insurance can be used for temporary financial needs that extend over a certain period of time, such as mortgages, tuition, and other loans. For example, a 10 year term policy only pays the death benefit if you die within the 10 year period.

Terms are as short as 1 year and as long as 30 years. A few companies even have a 40 year term. Some term policies are available with return of premium or ROP riders, which can refund all or most of the premiums paid into the policy at the end of the term!

Advantages

Term life offers the most death benefit for the money! Return of premium option can provide a tax free refund of all premiums paid if policy is kept the entire term period. Most policies have a guaranteed conversion option to permanent insurance, regardless of your health status.

Disadvantages

Premiums are only guaranteed for a specific period. Many policies say they are guaranteed renewable to age 95. This may be true, but the renewal rates after your initial term period can be 10 to 200 times higher than your original term! You may not qualify for a new term policy at older ages with another company due your health status. While the cost is lower than other types of insurance, term policies DO NOT provide permanent coverage for the rest of your life, and also DO NOT build cash value.

WHOLE LIFE INSURANCE

Provides a fixed amount of coverage for the rest of your life, which never expires as long as premiums are paid. Premiums never increase and your coverage never decreases. A portion of your premiums are invested by the insurance company.These policies are "permanent insurance" and build guaranteed cash values at a fixed rate.

Advantages

Guaranteed cash values with lifetime coverage! You have the option to create a paid up policy at an earlier age if desired. Additional death benefit is possible with dividends depending on the insurer's performance.

Disadvantages

Whole life is the most expensive type of policy for the money when death benefits are compared with term or universal life! Most whole life policies must be kept for many years to build reasonable cash values.

UNIVERSAL LIFE

These policies are another type of "permanent insurance" similar to whole life, in which your death benefit may be guaranteed beyond what term policies can offer, and some cash values may accrue. Variable universal life policies offer the potential for increased cash values that are linked to stocks, bonds and mutual funds, but contain many risks and should not be recommended to most individuals.

Advantages

The guaranteed death benefits of whole life, but at lower premiums than whole life. These policies are the lowest cost form of lifetime protection available. No lapse options are available to guarantee coverage and premiums for your entire life, even if the policy contains no cash value. Your premiums and death benefit guarantees can be adjusted if needed. You have the option to create a paid up policy at an earlier age if desired.

Disadvantages

Most No lapse universal life policies build very little or no cash values. Cash values can fluctuate in some policies, such as variable universal life to the point where increased premiums are needed or the coverage may lapse before your death. Important information on permanent insurance!

Please keep in mind, with all permanent life insurance policies (whole and universal life), the cash value is different from the death benefit. Cash value is the amount available if you surrender (cancel) your policy before death. Surrender charges can last as much as 20 years in some policies. The death benefit is the money that will be paid to your beneficiary if you die.

The beneficiary does not receive the cash value in addition to the death benefit of your policy. After cash value has grown inside the policy (this can take several years).

Consider the following

• You can borrow from the insurer using your cash value as collateral. Loans are available with no credit required. If you don't repay the loan (including interest), it will reduce the amount paid to your beneficiaries after your death. Make certain that the loans are structured properly. You may have tax consequences if the policy lapses while you have outstanding loans.
• You can use the cash value to pay your premiums or to buy more coverage (sometimes called paid up additions).
• You can exchange the policy by using the cash value for an annuity that will provide income for life or a specified period.
• You can cancel (surrender) the policy and receive the cash value in a lump sum. You only pay taxes on the value that exceeds what you've paid in premiums.
• Cash value insurance is designed to be kept for the long term.
• Canceling a cash value policy after only a few years can be expensive.

  Accidental Death insurance worth the money?

  Generally, you can purchase AD&D insurance as a separate policy or as rider (endorsement) on a basic life or health insurance policy. Its name states exactly what it covers; accidental death and dismemberment. However, there are limitations on the coverage. These limitations make accidental death and dismemberment insurance less useful, although it is also usually relatively inexpensive.

  The first thing to consider is whether AD&D insurance is a good deal for you. Is it likely you will have to use it? In most cases, life, health, and disability insurance already cover situations AD&D protects against. It can double, or at least add to, the amount of money you receive in case of a covered accident, but it may be wiser and more cost-effective to put the money you'd be paying towards the premium into a standard life or other insurance policy instead.

  A leading consumer website warns consumers that "AD&D is a very, very limited form of insurance. When it comes to insurance, you want to be covered and protected in all instances, not just certain ones."

  What Does AD&D Cover?

  In the event of a fatal accident or an accident that results in you losing your eyesight, speech, hearing, or a limb, AD&D will pay you or your beneficiaries a specified amount. However, there are stipulations to the coverage. To receive benefits related to an accident, your injuries or death must occur within three months of the accident date. Also, you will only collect benefits if your death or injuries are proven, direct results of the accident.

  Dismemberment coverage works on a "per-member" basis. If you lose one member (a hand, foot, limb, sight in one eye, speech or hearing), the insurance company will usually pay 50 percent of the full benefit. If you lose two members, you will receive the whole benefit. Coverage amounts for partial or complete paralysis vary.

• Optional coverages sometimes include hospital stay coverage after an accident, and spouse and children coverage.

  Typical exclusions of AD&D coverage include death during surgery, resulting from a mental or physical illness, bacterial infection, hernia, or a drug overdose. In addition, many policies do not cover risky activities such as skydiving, car racing, and involvement in a war. It is important to read the fine print when applying for this kind of policy. While it may seem like you're getting better and more adequate coverage, in reality, you're not.

  If you're working in a high-risk job, such as construction, the AD&D policy may be a good idea, although high-risk jobs result in higher premiums. It is inexpensive accident coverage, and it won't hurt to have the extra coverage. However, realize that an accidental death and dismemberment policy is extremely specific and thus unlikely to pay a benefit. If you already have a life insurance policy, purchasing a larger benefit amount might not cost much more, and it will cover more circumstances.