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What's the purpose of life insurance?
Life insurance is usually purchased
by individuals to cover loss of income in case of death
and to assist with subsequent expenses such as medical
and funeral bills, child care costs, college expenses,
and the costs associated with day-to-day living, such
as mortgage and rental payments. Life insurance may
offer both protection and value accumulation.
What types of life insurance are
available?
There are many varieties of life insurance policies,
but most can be divided into three basic types: term,
whole life and universal life.
1) Term life insurance
offers protection for a set number of years at a fixed
premium and generally offers no savings feature or cash
surrender value. The face amount of a term life insurance
policy is generally payable only if the insured person
dies during the period during which he or she is covered
by the policy. Term life premiums are usually the least
expensive, but at the end of the policy term, the policy
usually may be renewable at the insured person's current
age and at a higher rate. Some term life insurance policies
contain a "convertible" feature, whereby the
term policy can be converted to a permanent life policy,
usually without a medical examination.
2) Whole life insurance
(also known as ordinary life) provides lifetime protection
with cash value. Premium rates are generally constant
throughout the life of the policy contract, and the
premiums are payable as long as the insured person lives.
Full payment of benefits is made upon the death of the
insured person, or at attainment of age 97, 98, 99 or
100, depending on the insurance policy.
Upon death, the insurer retains the policy's accumulated
savings, but the policy has a cash surrender value,
against which the insured person may borrow or which
he or she may receive if the policy is surrendered.
"Limited-payment life insurance" is a variation
of whole life insurance; premiums are paid for a set
number of years, such as 20 or 30 years, or to age 65,
after which protection continues for life without further
paymerits. The face value of the policy is paid upon
the death of the insured person.
3) A universal life plan is permanent
life insurance that builds cash value while providing
flexible life insurance coverage to meet your changing
needs. In essence, the premiums of a universal life
insurance policy are split in two ways. The premium
you pay goes toward covering the cost of the insurance
policy and the remaining balance is invested and earns
interest on a tax deferred basis. Premium payments are
adjustable, as is the amount of insurance coverage you
select. Cash value accumulations are tax-deferred and
earn a competitive rate of interest.
What is variable life insurance?
A variable life insurance policy allows the buyer to
participate in a variety of tax-deferred investment
options. You can apply the interest earned on these
investments toward the premiums, potentially lowering
the amount you pay. Under variable life insurance contracts,
the owner can generally allocate the purchase payments
among several types of investment portfolios wherein
the cash value is determined by the performance of those
investments. Accordingly, variable life insurance contracts
require that you review a prospectus before investing
money, and they are regulated by the United States Securities
and Exchange Commission.
How are life insurance premiums determined?
There are many factors used, but the most significant
in determining an individual's rate are age, health,
occupation and hobbies.
For the policy that best meets
your needs, contact our agency.
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