What are my options?

There are four basic types of life insurance to meet your individual needs.

Term life insurance is the least expensive type of coverage, at least initially, and the simplest. These policies do not build up a cash value. Coverage is in effect for a fixed term or period of time - usually one to 30 years - and usually can be renewed. The policy pays your beneficiary a fixed amount of money if you die during the term of the policy. The premiums are lowest when you are young and increase upon renewal as you age. Be sure to check your policy for age or other renewal restrictions.

Whole life insurance provides protection as well as a cash value. The premiums remain at a fixed level for the duration of the contract. Over time, the policy generally builds up cash value on a tax-deferred basis. Many companies pay policyholders a dividend. Dividends provide both flexibility and increased value to your life insurance policy. They can add more coverage to your overall insurance benefit and can build a sizable cash value. You may prefer this type of coverage since the cash value can benefit you while you're still alive. You can use it to supplement retirement funds or help provide for a child's education - it's your money to use as you need. You should, however, keep in mind that life insurance should not be purchased solely for accumulation. Its primary purpose is protection. Also, withdrawals and/or loans will decrease the death benefit.

Universal life insurance is a flexible life insurance plan. These policies are interest-sensitive and permit the owner to adjust the death benefit and/or premium payments, within limits, to fit the owner's situation. Your net premium payments are applied to the accumulation fund, which earns a guaranteed interest rate. The monthly cost of the death benefit and policy administration is deducted from the accumulation fund. As with whole life insurance, the cash value is yours - you may withdraw it or borrow against it at any time. Read your policy carefully to understand how withdrawals may affect the death benefits.Since you decide how much premium to pay, within limits, some universal life policies even allow you to skip payments. If you skip a premium payment, the administrative and death benefit costs are deducted from your cash value. The policy stays in effect until your cash value can no longer cover these costs. Make sure you understand your annual statement so you know how much interest your policy is earning and how much cash value you have. Universal life insurance rates are subject to change, but the rate will never fall below the minimum rate guaranteed in the contract.

Variable life insurance is for those who want to tie their life insurance policy to the performance of the financial markets. You decide how your net policy values are to be invested. Your cash value may have the opportunity to accumulate more rapidly than with other cash value policies, but you incur additional risk. If market performance is poor, your death benefit may decrease, and you may have to pay higher premiums to keep the policy in effect. As with whole and universal life policies, you may borrow against or withdraw the cash value at anytime. Keep in mind that loans and withdrawals may reduce cash values and the death benefit. Read your policy carefully for any possible charges associated with these transactions. These policies are sold by prospectus, a valuable disclosure document, that you should also read carefully.

 

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