Monday, March 29, 2010

Different Types of Insurance

Term insurance is the most fundamental, and usually most expensive, form of life insurance for people under age 50. A term policy is written for a specific period, typically 1 to 10 years, and can be renewed at the end of each semester.

In addition, the increase in premiums at the end of each semester and can be expensive for older individuals. A key policy rate term in the premium for periods up to 30 years.

Term insurance declining balance, variations on this theme, often used as loan collateral because it can be written to conform with the amortization of your primary mortgage. While premiums remain constant over the period, nominal value continues to decline. After the loan is paid off, insurance is no longer required and the policy expires. Unlike many other policies, term insurance has no cash value. In this sense, it is "pure" insurance without any investment options. Benefits are paid only if you die within the policy term. After the term ends, your coverage ends, unless you choose to renew the policy. When buying term insurance, you may find policies that renewable until age 70 and converted to permanent insurance without medical examination.

Whole Life combines permanent protection with a savings component. As long as you continue paying premiums, you can lock in coverage at premium levels. Part of the premium arising as a cash value. As the policy gains value, you may be able to borrow up to 90% of the cash value tax-free policy.

Universal Life is similar to whole life with the added benefit of potentially higher earnings on savings component. Universal life policies are also very flexible in terms of premiums and nominal value. Premiums can be increased, decreased or delayed, and cash values ​​can be drawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually at least 4%. You will receive an annual statement that details cash value, total protection, income and expenses.

The weakness of this type of insurance include higher fees and interest rate sensitivity. Universal policies including payment and ongoing costs with the total administrative costs as high as 5% to 7% of your premium. You may also find your premiums increasing when interest rates decline.

Variable Life generally offers fixed premiums and control over your policy cash value. Your cash value is the option you invest in stocks, bonds or money market funding options. Cash values ​​and death benefits can rise and fall based on the performance of your investment choices. Although death benefits usually have the floor, there is no guarantee of cash value. The cost for this policy may be higher than the universal life and investment options may vary. On the plus side, capital gains and other income-generating investments are tax deferred as long as funds are invested in insurance contracts.

Variable Universal Life Insurance is the most aggressive types of policies. Variables such as life, you control the investments in mutual funds. However, there is no guarantee of universal variable policies beyond the original face value death benefit. These policies are probably best suited for wealthy buyers who are able to reduce the risk.

Key Terms and Definitions

* Face Value - The original amount of death benefits.
* Convertibility - Option to convert from one type of another policy (for life), usually without a physical examination.
* Cash Value - The savings part of a policy that can be borrowed against or cashed in.
* Premiums - Monthly, quarterly, or annual payments required to maintain coverage.
* Beneficiary - The individual or entity (eg, trust) designated as beneficiaries.
* Paid Up - A policy that requires no further premium payments due to prepayment or earnings.

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