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are different types of term policies. Level term provides
a consistent amount of insurance.
Decreasing term, which is an ideal type of insurance
to cover any shrinking debt obligation, starts
with a specified face amount which decreases annually
until it reaches zero at policy expiration.
Increasing term provides a growing amount of insurance,
but the need for this type of protection is
rare. Many
term policies are renewable, which means they may be
renewed without providing evidence of good
health until a specified age. However, because of an
insured's advancing mortality (increasing
chance of death at higher ages), renewal premiums will
always be higher than previous premiums. Many
term policies are also convertible, which means they
may be exchanged for another type of policy,
such as whole life. Whole
life insurance, sometimes called straight life or permanent
life, is protection that can be
kept as long as you live. You
can choose to pay a premium that doesn't rise as you
grow older, averaging the cost of the
policy over your life. Whole
life insurance has a "cash value" or the sum that grows
over the years with taxes deferred. If
you cancel the policy, you receive a lump sum. You
pay taxes only if the cash value plus any
dividends exceeds the sum of premiums paid, according to the American Council of Life Insurance. Whole Life Accumulates Value
Whole
life insurance is a permanent form of insurance protection
that combines a death benefit with
cash value accumulations. The face amount is constant,
and this amount would be paid if the insured
dies at any time while the policy is in effect. Premium
payments are fixed and remain the same from
the original effective date to the maturity date. The
policy is designed to mature at age 100-the
age when premium payments would end and the cash value
would equal the face amount. At maturity, the
face amount would be paid to an insured who is still living. Although
whole life policies are among the most common forms
of life insurance sold, most
individuals do not plan on paying premiums until age
100. Many of us do not expect to live until
that age. More commonly, whole life insurance is used
as a form of level protection during the
income producing years. At retirement, many people
then begin to use the accumulated cash value to
supplement retirement income. This
type of life insurance plays an important role in financial
planning for many families. In
addition to the death benefit or eventual return of
cash value, the policy has some other
significant features. During a financial emergency,
policy loans may be taken and the full policy
values may later be restored. If the contract is a
participating policy, it may also pay
dividends. |