Insurance Library

Life > Basics

When looking at purchasing a life insurance policy, the first thing you should do is thoroughly examine your financial situation and the standard of living you want to maintain for your dependents and survivors. You need to determine who will pay your funeral costs and final medical bills.

Your life insurance policy should be reevaluated on a yearly basis, and whenever you experience major change in your life such as marriage, divorce, birth or adoption, or a major purchase such as a home or business.

Term Insurance

Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term policies can be renewed when you reach the end of the term, anywhere from one to 30 years, though the premium rates will increase with each renewal.

Initial premiums are generally lower for term insurance than for permanent insurance, making it possible for you to buy higher levels of coverage at an earlier time, when the need for protection often is greatest. But it is important to keep in mind that your premiums will increase as you grow older and your coverage may terminate at the end of the term or become too expensive to continue.

For more on term insurance, see Term Life Insurance .

Permanent Insurance

Unlike term insurance, permanent plans provide lifelong protection. As long as you continue to pay the premiums, the death benefit is valid. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, you may want to consider term insurance.

Permanent policies are known by many names: adjustable, ordinary, universal, variable, and whole life. Most of them have a cash value, not found in most term policies, which provides you with some options:

• It is possible to cancel or surrender part or all of the policy and receive the cash value. The earlier you surrender the policy, the less cash value it will hold.
• If you need to halt premium payments, you can use the cash value to continue the protection you currently enjoy.
• You can also borrow from your insurance company using the cash value of your policy as collateral.

There are also several types of permanent insurance, enabling you to tailor your policy to your specific needs:

• Whole or ordinary life is the most common type. The premiums remain constant and must be paid periodically.
• Adjustable life insurance premiums are recalculated at intervals to reflect current interest rates.
• Universal life, after the initial payment, accepts premium payments at any time and in virtually any amount. Your death benefit can also be increased or decreased more conveniently than with other policies.

Variable life bases your death benefit and cash value on the performance of an investment portfolio. You will receive a prospectus with your variable life policy.