The Basics Of Life Insurance

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.