 What are the different types of life insurance?

•Term insurance

•Cash value (or endowment)

•Note:  All life insurance is term insurance.  The difference is that cash-value insurance has a separate investment component that accrues, after fees and expenses (and these may be substantial), without taxes

Life Insurance Policy Terms

üPremium

üThe monthly cost of the policy

üFace value

üThe benefit due upon death

üInsured

üThe person whose life is covered by the policy

üPolicy owner

üThe individual or business that pays for and owns the policy

üBeneficiary

üThe recipient of the benefit upon the death of the insured

Different Types of Life Insurance

üWhat is Term Insurance?

•Insurance protection for the insured over a specific term or time period.

üWhat are its advantages?

•It is the least expensive form of insurance

•Death benefit coverage is for a specific term

üWhat are its disadvantages?

•It is only valid if the insured dies during the term

•Insurance may not be renewed once your term expires

•Advancing age increases the cost of insurance

Understanding Term Insurance:
The Process

üWhat are the different types of Term Insurance?

üRenewable term insurance

•Can be renewed for a specific number of years

•Generally have a guaranteed maximum premium for some period of time

•The longer the guaranteed premium (.i.e., 10 years), the higher the monthly or annual premium

üDecreasing term insurance

•Premiums remain constant while the face amount of coverage decreases

•This takes into account the fact that the mortality cost of term insurance increases in later years

•Generally for a specific loss coverage, such as mortgage or child dependency where need changes

üConvertible term life insurance

•Term policy that can be changed to cash-value policy within a specific number of years

Term Insurance (continued)

üWhy are premiums for term much less than cash-value?

•You are only paying for insurance for a specific period, i.e. risk is priced one period at a time

•95% of term policies lapse without payment

•It is generally for a shorter period, i.e. 1-10 years. 

•The longer the period, the more insurance companies must charge higher fees in the early years to offset the more expensive mortality charges and fees in the later years

•Term is generally easier and cheaper to administer

•Fees and sales charges are less complex

Term Insurance (continued)

üKey questions when purchasing term insurance:

•How long can I keep this policy?

•What are the renewal terms of the contract?

•When will my premiums increase?

•Can I convert my term policy to a permanent or cash-value policy?  What are the details?

•How strong is the company financially?