Other types of Life Insurance

The life insurance policies are of many types. The principal types of policies are
discussed below:
(1) Whole life Policy :
Under this policy premiums are paid throughout life and the sum insured becomes
payable only at the death of the insured. The policy remains in force throughout the
life of the assured and he continues to pay the premium till his death. This is the
cheapest policy as the premium till his death. This is the cheapest policy as the
premium charged is the lowest under this policy. This is also known as ‘ordinary life
policy’. This policy is suitable to persons who want to provide for payment of estate
duty, make bequeathments for charitable purposes and to provide for their families
after their death.
(2) Limited payment life policy :
In the case of whole life policy there is one disadvantage in that the assured must
continue to pay the premium even during his old age when he is no more employed.
Under the limited payment life policy premiums are payable for a selected number of
years or until death, if, earlier. The assured knows how much he will be required to
payable only at the how long he lives. The sum insured becomes payable only at the
how long he lives. The sum insured becomes payable only at the death of the insured.
It is a suitable policy to meet the family needs.
(3) Endowment policy :
It runs only for a limited period or up to a particular age. Under this policy the sum
assured becomes payable if the assured reaches a particular age or after the expiry
of a fixed period called the endowment period or at the death of the assured
whichever is earlier. The premium under this policy is to be paid up to the maturity
of the policy, i.e., the time when the policy becomes payable. Premium is naturally a
little higher in the case of this policy than the whole life policy. This is a very popular
policy these days as it serves the dual purpose of family and ole age pension.
(4) Double endowment policy :
Under this policy the insurer agrees to pay to the assured double the amount of the
insured sum if he lives on beyond the date of maturity of the policy. This policy is
suitable for persons with physical disability who are otherwise not acceptable for
other classes of assurance at the normal tabular rates. Premiums are to be paid for a
selected term of years or until death, if earlier.
(5) Joint Life Policy :
This policy covers the risk on two lives and is generally available to partners in
business. Policies are however, issued on the lives of husband and wife under
specified circumstances. Sum assured becomes payable at the end of the selected
term or on the death of either of the two lives assured, if earlier.
(6) With or without profit policies :
Under the “with profit or participating policies,” the policy holder is allowed a share
in the profits of the corporation in the form of bonus and it is added to the total sum
assured and paid at the time of maturity of the policy. In the case of ‘without profit
or non-participating policies, no such profit is allowed. Premium in the first case is
higher and is lower in the later case.
(7) Convertible whole life policy :
This policy initially provides maximum insurance protection at minimum cost and
offers a flexible contract which can be altered at the end of five years from the
commencement of the policy to an endowment insurance.
(8) Convertible term assurance policy :
This policy meets the needs of those who are initially unable to pay the larger
premium required for a whole life or endowment assurance policy but hope to be
able to do so within a few years. It would also enable such persons to take final
decision at a later date about the plan suitable for their future needs.
(9) Fixed term (marriage) Endowment policy & education annuity policy :
It is a policy suitable for making provisions for the marriage or education of children.
Premiums are payable for a selected term or till prior death. The benefits are payable
for selected term or till prior death. The benefits are payable only at the end of
selected term. In case of the marriage endowment, the sum assured is paid in lump
sum, but in case of the educational annuity, it is paid in equal half-yearly installments
over a period of five years.
(10) Annuities :
It is a policy under which the insured amount is payable to the assured by monthly
or annual installments after he attains a certain age. The assured may pay the
premium regularly over a certain period or he may pay the premium regularly over a
certain period or he may pay a lump sum of money at the outset. These policies are
useful to persons who wish to provide a regular income for themselves and their
dependants.
(11) Sinking fund policy :
Such a policy is taken with a view to providing for the payment of liability or
replacement of an asset.
(12) Multipurpose policy :
This policy meets several insurance needs of a person – like provision for himself in
old age, income for his family and provision for the education, marriage or the start
in life of his children. It gives maximum protection to the beneficiaries in the event of
the early death of the assured, as it provides :
i) Regular monthly income during the unexpired term;
ii) Additional monthly income for a period of two years from the date of death;
iii) Payment of a part of the sum assured on death and
iv) Payment of the balance sum assured at the end of the selected period
On maturity the assured may get the sum assured in cash, in the form of monthly
pension, or an increased sum payable on death. Premiums are payable during the
selected term or till death, it earlier.

FAQ'S. About life insurance

Who Needs Life Insurance?
Your need for life insurance varies with your age and responsibilities. It is a very important part of financial planning. There are several reasons to
purchase life insurance. You may need to replace income that would be lost with the death of a wage earner. You may want to make sure your dependents
do not incur significant debt when you die. Life insurance may allow them to keep assets versus selling them to pay outstanding bills or taxes.
Consumers should consider the following factors when purchasing life insurance:
Medical expenses previous to death, burial costs and estate taxes;
Support while remaining family members try to secure employment; and
Continued monthly bills and expenses, day-care costs, college tuition and retirement.
What is the Right Kind of Life Insurance?
All policies are not the same. Some give coverage for your lifetime and other cover you for a specific number of years. Some build up cash values and
others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may
offer other benefits while you are still living. There are two basic types of life insurance: term insurance and permanent insurance.
Term Insurance
Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine cash
value life insurance with term insurance for the period of your greatest need for life insurance to replace income.
Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the
largest insurance protection for your premium dollar. It generally does not build up cash value.
You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term,
premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at a
certain age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year.
At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase. You may be able to trade many
term insurance policies for a cash value policy during a conversion period even if you are not in good health. Premiums for the new policy will be higher
than you have been paying for the term insurance.
Permanent Insurance
Permanent insurance (such as universal life, variable universal life and whole life) provides long-term financial protection. These policies include both a
death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.
How Much Life Insurance Do I Need?
Ask yourself the following questions:
How much of the family income do I provide?
If I were to die, how would my survivors, especially my children, get by?
Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?
Do I have children for whom I would like to set aside money to finish their education in the event of my death?
How will my family pay final expenses and repay debts after my death?
Do I have family members or organizations to whom I would like to leave money?
Will there be estate taxes to pay after my death?
How will inflation affect future needs?
Some insurance experts suggest that you purchase five to eight times your current income. However, it is better to go through the above questions to
figure a more accurate amount.
Tips on Buying Life Insurance
Make sure you feel confident in the insurance agent and company.
Decide how much you need, for how long, and what you can afford to pay.
Learn what kinds of policies will provide what you need and pick the one that is best for you.
Do not sign an application until you review it carefully to be sure the answers are complete and accurate.
Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
When you buy a policy, make the check payable to the company, not the agent.
When I bought my life insurance policy, the agent said it would be "paid up" after ten years, but it’s been that long and I’m still getting bills.
Why?
Your contract (insurance policy) may provide for guaranteed interest rates and/or dividends the insurance company will pay on your premiums. But your
premiums must make very high earnings before they will "pay up" your policy. The company must stand behind items that are guaranteed in the contract.
Promises of "paid up" life insurance are illegal when based on non-guaranteed values. If you have documentation of the agent promising this, your state
insurance department may be able to help. Documentation would include any writing containing the promise -- even an informal, handwritten note or a
similar notation by agent.
Who can take out a policy on my life?
Only someone who has an "insurable interest" can purchase an insurance policy on your life. That means a stranger cannot buy a policy to insure your
life. People with an insurable interest generally include members of your immediate family. In some circumstances your employer or business partner
might also have an insurable interest.
Insurable interest may also be proper for institutions or people who become your major creditors.
Must my beneficiary have an insurable interest?
No. If you buy a policy on your own life, you become the owner of the policy. As the owner, you can name anyone as beneficiary, even a stranger!
What about companies that advertise “no physical exam?”
The insurance may be more expensive than if the company required a physical. Although there is no physical, you will probably have to answer a few,
broad health questions on your application.
Some life insurance ads claim “you can not be turned down.” What's the catch?
Such ads are for "guaranteed issue" policies that ask no health history questions. The company knows it is taking a risk because people with bad health
could buy their policies. The company balances the risk by charging higher premiums or by limiting the amount of insurance you can buy. The premiums
can be almost as much as the insurance. After a few years you could pay more to the insurance company than it will have to pay to your beneficiary.
Such policies may offer only the return of your premiums if you die within the first couple of years after you buy the policy.
Why is term life often called “temporary” insurance?
Insurance agents sometimes refer to term insurance as "temporary" because the term policy lasts only for a specific period. It is probably no more
"temporary" than your auto or homeowner insurance. Just like term, those types of policies provide coverage for a specific period of time, and must be
renewed when that period ends.
Why are some insurance agents reluctant to sell term insurance?
An agent may believe term is risky, but only because you could have a hard time buying a policy in the future if your health deteriorates or you cannot
afford the higher premiums. Commissions could also be a reason for an agent who discourages term. The agent often makes less money for selling term
than for other forms of life insurance.
What do I get when I buy term insurance?
You have bought and received the company's guarantee that if you die during the term of the policy, it will pay a death benefit to your beneficiary.
Does that mean I've wasted my money if I don't die?
No more than you have wasted money by buying car insurance but never having an accident. You've purchased peace of mind. With term life insurance, if
you die during the term, you know the company will pay your beneficiaries.
An insurance agent has suggested I switch term companies every couple of years to take advantage of the company's promotional rates in the
first couple of years. Anything wrong with that?
Nothing wrong, but there is always a risk when you switch polices that you could be subject to a new contestability period. You start a new, 2-year
contestability period anytime you switch . If you die during that 2-year period, the insurance company can (and probably will) investigate the statements
you made on your application . If you've given inaccurate or incomplete answers, the company may (and probably will) refuse to pay the death benefit.
I understand my permanent policy would be “fully paid up” at age 65. What does that mean?
"Fully paid up" means just that. You have made enough premium payments to cover the cost of insurance for the rest of your life.
What happens to the cash value after the policy is fully paid up?
The company plans to use the cash value to pay premiums until you die. If you take cash value out, there may not be enough to pay premiums. The
company could require you to resume paying premiums, or reduce the amount of the death benefit to an amount that the remaining cash value will
support.
I had a policy that was paid up; now I'm told I don't. What can I do?
You may have signed papers that permitted the cash value of your paid up policy to be used to pay for another, larger policy. If you're not sure or can't
remember, call the insurance company.
What is a “participating” policy?
That is a policy that may pay you dividends. You have a chance to "participate" in the company's earnings. A life insurance dividend is actually a refund of
part of your premium. When a company collects more money in premiums than it needs to pay death claims and maintain the insurance pool for future
claims, the company may pay dividends at the end of that year.
An insurance agent has suggested that I buy term instead of whole life. Does it makesense to buy term and invest the difference?
"Buy term and invest the difference" has been a popular sales slogan for term life. The pitch compares term, the least expensive form of life insurance,
with other kinds of life insurance.
Example:
$100,000 death benefit at age 35
Annual whole life premium: $1,800
Annual renewable term premium: $250
Difference: $1,550
What are your choices?
1. Buy whole life. The “difference” is used to keep your premiums lower than the actual cost of insurance as you get older.
2. Buy term. You keep the difference.
In addition, make sure you consider the following:
As you get older your term premiums will increase to keep up with the cost of insurance;
If you invested the difference, you could use your investment to pay the higher cost of insurance;
If you spent the difference you will have to dip into other savings to pay higher premiums; and
If your health deteriorates you may not be able to buy a new policy
For 10 years I paid the insurance company $1,000 every year. That's $10,000! But when I cashed in the policy they sent me only $5,800.
Where did the rest of my money go?
The rest of the money paid for insurance. You were entitled to only the cash surrender value — that is, the amount you had paid to "pre-fund" insurance
in your old age. The amount would have been even less if you had borrowed money that had not yet been repaid.
How much cash value is in my policy?
Read your policy. It has a table of cash values that should provide the answer. Call your agent if you are still not sure of the cash value amount.
What happens to the cash value in my policy when I die?
When you die, the insurance company will pay the death benefit. No matter how much cash value you may have had in the policy the moment before
you died, your beneficiaries can collect no more than the stated death benefit. Any loans you have not repaid (plus interest) will be subtracted from the
death benefit.
The result: your beneficiary could wind up with less than the face amount of the policy.
The exception: some whole life policies pay both the death benefit and the cash value when you die.

Make Sure Death Benefit Is Adequate

What kind of life insurance should you buy? That also depends. But keep this very important principle in mind:
* Tip. Whatever type of policy you buy, make sure it provides enough of a death benefit to meet your family's needs if you aren't there. When you consider buying life insurance, calculate what your family must have in terms of a death benefit. Don't lose sight of this number.
What kinds of life insurance policies are there? There are several, but keep in mind that the terms and costs of the policies vary widely among insurers.
There are two basic types:

1. term life, which is good for only a certain period of time, and,
2. cash-value, which is "permanent" insurance that also includes a buildup of value in cash in addition to your death benefit. You can borrow against your cash value. You can even take out some of that cash value, but your death benefit will be reduced.

What exactly is "cash value?" It's the part of a permanent life insurance policy not needed for so-called "mortality expenses." The greater your risk of dying, for whatever reason, in the near term, the greater your mortality expense to your insurer.
When young, healthy people buy life insurance, they have a very low mortality cost to their insurer (which is why life insurers are so willing to provide coverage to the young and healthy).

What You Need to Know about Term Life Insurance...

Term life policies provide coverage for specific periods of time, sometimes as little as one year. While you usually can renew term life policies for one or more terms even if your health has changed, there's potentially a big risk here if you get sick during the term.
* Tip. If your health does change, you probably won't be able to buy another term without watching your premium skyrocket. You should ask your insurer or agent what the premium will be if you continue to renew the policy.
* Note. You should also ask whether you will lose the right to renew the policy when you reach a certain age. Because this coverage is fairly cheap, it's often a good option for young people in good health who can't afford to buy "permanent" coverage.
Here are a couple of term life policy options:

1. Yearly Renewable Term Life -- This is coverage for a longer term, five, 10 or 20 years. The longer term also means that the costs to cover you are spread out so that you will avoid the potential for huge annual premium increases.
2. Convertible Term Life -- This is yearly renewable with the option to convert to a permanent policy in the future. The coverage, which often has the lowest cost and highest death benefit options of term insurance, can be a good choice for younger people who can't afford permanent coverage but who need a large death benefit and the option to convert to a permanent policy down the road.

What you need to know about Cash Value Life Insurance...

Cash-value life policies have premiums that are higher at the beginning than they would be for the same amount of term insurance.
The part of the premium not used to cover the yearly cost for mortality and other expenses is invested by the company and builds up a cash value that you may use in a variety of ways. Here are some specific examples of cash-value life insurance:

• Whole (or Ordinary) Life -- Like other cash-value policies, this is permanent coverage. The cost is literally stretched out over your entire life, or what the insurance company expects your entire life period to be. Life insurers have tables that tell them how long, on average, someone of your age and physical health will live.
  
  Say you want $500,000 in coverage. The insurance company's rates are based on how much they need to charge you in order to allow the company to recoup the eventual death benefit while you are alive. The premium and the death benefit don't change much in whole life policies. You pay so much a month for a given death benefit. However, dividends to policyholders can increase the coverage or decrease the premium.
• Universal Life -- This is the flexible life insurance. You can change your premium and your death benefit at any time, although a substantial increase in the coverage usually requires you to prove you are still in good health.
• Variable Life -- This is a hybrid whole/universal coverage in which the death benefit is dependent on the investment performance of the insurance company's assets. And you get to choose the investment vehicle -- money market fund, bond fund or stock fund -- for your premium.

* Note. If your investments do well, your policy's cash value and death benefit will increase. If not, they'll go down, but most variable life policies won't let your death benefit drop below a certain level. However, it's possible a company will charge you for a guaranteed death benefit.
Which type of policy is best for you? In general, if you have significant assets, it's better (and less risky) to have some sort of cash-value policy. But which one? It's more important to buy the coverage from an insurer that has the best chance of performing well in the future; an insurer that has low actual expenses and mortality costs. Such an insurer will be able to offer better terms, including higher death benefits, higher cash value and lower premiums.
* Tip. But, again, there are more than 2,000 companies selling life insurance in the United States. As a result, you have thousands and thousands of options. This makes it even more imperative that you have a trained insurance professional analyze your financial situation and determine what kind of policy, from which insurer, is best for you.