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Inside this Article
Life
Insurance Policies
Life Insurance - Types of Policies
There is term insurance and permanent
insurance.
This policy pays a death benefit if you die within
a specific period of time (the term of the policy).
Like auto and homeowner's insurance, term
insurance only covers you during the time you're
making payments. For this reason, it's less expensive
than permanent life insurance. There are four
different varieties of term insurance:
- Convertible term insurance lets
you convert the policy into a permanent one at any
time. There's no medical exam, but premiums may go
up.
- Term insurance lets you sign on
for a new term policy without a medical exam,
although the premium may be higher.
- Level term insurance lets you pay
the same premium every year for the length of the
term and be entitled to the same amount of
proceeds if you die during the term. If you want
to renew it at the end, your premium may rise
significantly, since you'll be older.
- Decreasing term insurance pays a
death benefit that gradually decreases in value
over time. Premiums usually remain the same
throughout the term.
Permanent
Insurance
This policy continues until you die (as long as you
make timely payments) and may provide a savings
feature that builds up a cash reserve you can use
while you're alive. In fact, if there's enough, you
can use the cash to pay the premiums, which can be
helpful in times of tight finances. This insurance
is more expensive than term insurance. There
are a few varieties of permanent insurance:
- Whole life lets you pay a fixed premium
for a fixed death benefit. There is a cash savings
feature that, over time, provides you with a cash
reserve.
- Universal life is a little more flexible
than whole life. It may let you change the amount
of insurance as your needs change. Some
changes may require a medical exam.
- Variable life invests some of your
premiums in stocks, bonds, and money market funds.
The upside is that your investments may perform
well, and provide a larger cash reserve. The
downside is the risk that the investments will
lose money, but a minimum cash value is seldom
guaranteed. Most insurers guarantee a minimum
death benefit, although it may not be what you had
hoped to receive.
- Variable-universal life combines the
premium and death benefit flexibility of universal
life with the investment flexibility and risk of
variable life insurance.
Credit
Life Insurance
Credit cards
and lending institutions may offer life insurance
to pay off your outstanding loans in the event of your
death. This is generally made available in two ways
1-As part of the loan at no extra
charge. In this case the cost of the life insurance
is borne by the lender and is included in its interest
rate or other finance charges. If you have this type
of credit life insurance, you don’t need
separate life insurance to pay off that loan if
you die.
2-As an option at an extra charge.
In this case, you should usually reject the optional
coverage
provided that you
have some other life insurance (group or
individual) that can be designated to pay off the loan
if you die. If you’re under age 50 and you don’t
have other insurance that could pay off this
loan, consider buying individual life insurance
for this purpose as the rates will probably be better.
At 50 or over (or younger with health issues), if you
have no other life insurance for this purpose,
the optional credit life insurance is likely to
be cheaper than individual life insurance.
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