What to look for in analyzing a proposed life insurance policy.
::::: Whole Life
The most common type is called 'Whole Life', 'Straight Life' or 'Ordinary Life' insurance, for which you pay the same premiums for as long as you live. These premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than, the premiums you would eventually pay if you were to keep renewing a term insurance policy until your later years. Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period. Although you pay higher premiums, to begin with, for whole life insurance than for term insurance, whole life insurance policies develop 'cash values' which you may have if you stop paying premiums. You can generally either take the cash, or use it to buy some continuing insurance protection. Technically speaking, these values are called 'non-forfeiture benefits'. This refers to benefits you do not lose (or 'forfeit') when you stop paying premiums. The amount of these benefits depends on the kind of policy you have its size, and how long you have owned it. A policy with cash values may also be used as collateral for a loan. If you borrow from the Life Insurance Company, the rate of interest is shown in your policy. Any money which you owe on a policy loan would be deducted from the benefits if you were to die, or from the cash value if you were to stop paying premiums.
::::: Modified Whole Life - Burial
A modified whole life insurance policy (Burial Insurance) pays a sum to you, the policyholder, if you live to a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Premiums for burial policy insurance are higher and cash values are lower than for the same amount of whole life insurance. Therefore, burial insurance will provide the least amount of death protection for your premium dollar.
::::: Annual Renewable Term
Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your dollar. Some term insurance policies are 'renewable' for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued. Some term insurance policies are also 'convertible'. This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy 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.
