Term Life Insurance
This is life insurance you buy for a specific period of time, usually 5, 10, 15, 20 or 30
years. It pays the amount of the policy to your beneficiary if you die before the end of
this period. By buying a longer term policy, your costs can be stretched out to avoid the
annual increases found in non-guaranteed term life.
Whole Life or Ordinary Life
Whole life policies stretch the cost of insurance out over a longer period
of time in order to level out the otherwise increasing cost of insurance. In this case,
however, it is spread not over a few years but over your entire life. Your excess premium
dollars are invested in the company's general portfolio.
Universal Life
This option offers greater flexibility than whole or term life. After your
initial payment, you can reduce or increase the amount of your death benefit (although to
increase the amount, you'll probably have to give the insurance company medical proof that
you are still in good health). Also, after your initial payment, you can pay premiums any
time, in almost any amount within the policy's required minimums and maximums.
*Variable Life
There are both Universal and Whole Life versions of Variable Life. This
option provides death benefits and cash values that fluctuate with the performance of the
insurance company's portfolio of investments (you'll receive a prospectus along with your
policy). The cash value is not guaranteed, but you get to choose where your premium
dollars go among the variety of investments in the portfolio. Thus, while there is no
guaranteed cash value, you have control over your money and can invest it according to
your own tolerance for risk.
If your investments perform well, you'll have a higher cash value and death benefit. If
they don't, you'll have a lower cash value and death benefit, although some policies
guarantee a minimum death benefit.
You can also take loans against the cash value of your policy, but if you don't pay them
back with interest, your beneficiaries will receive a reduced death benefit. You can also
surrender your policy for cash or convert it into an annuity, but keep in mind that
cashing in a permanent policy after only a couple of years is an expensive way to get
insurance protection for a short time.
Disability Insurance
Most of us think nothing of insuring our cars, homes and other valuables.
But many of us overlook our most valuable asset ... the one that makes all the others
possible ... our income.
Of course, life insurance takes care of financial loss due to premature death. But what
happens if you're sick or injured and can't work for several months or even years? One in
seven people becomes disabled for at least five years before reaching age 65. And between
ages 35 and 65, one in five people will become disabled, statistics show. Being out of
work for an extended period can have devastating financial consequences on a family. Yet,
more Americans have life insurance policies than have disability insurance (about 70
percent vs. 40 percent). We protect ourselves against dying, but not against losing our
greatest asset — our earning potential.
To put it bluntly, when you die, you no longer have expenses. When you're disabled, you
still have living expenses, now compounded by medical expenses. You've got rent or a
mortgage to pay, food, car, utilities, and perhaps your children's college tuition.
That's where disability insurance comes in. Disability insurance can offer a financial
safety net. When you're unable to work for an extended period of time because of an injury
or illness, it pays monthly benefits until you are well enough to return to work. (It
won't protect you, of course, if you are laid off or fired.)
