There are numerous forms of life insurance - there are undoubtedly dozens, if not hundreds, of permutations of life insurance contracts. There are always specialized needs, and almost always there is an insurer willing to tailor a policy to meet a specific need.
The different types of policies include term life insurance, ordinary or whole life insurance, and the various permutations of the same, including adjustable, universal, and variable life policies. In addition, there are various forms of credit life policies. These are mostly examples of individually underwritten and owned policies.
There are also some kinds of life insurance policies that are more commonly marketed and sold on a group basis subject to a master policy. These can include some forms of credit life insurance, as well as accidental death coverages that are often marketed to persons who share some qualifying characteristic or membership. For example, many credit card issuers include such coverages automatically upon issuance of the credit card, or, upon purchase of an airline ticket with that credit card. Such coverages can be offered through memberships of organizations like the AARP, NRA, bar or medical associations, or even through commercial outlets.
For example, the Los Angeles Times has for decades offered to its subscribers the opportunity to participate in a low cost, group accidental death life insurance program. Available limits are relatively high and annual premiums are very low. Coverages are somewhat more restrictive than individually owned life insurance policies. Nonetheless, for younger persons whose primary exposure to fatality is some sort of accident and who may want or need higher life insurance limits than they could afford by means of term or whole life policies, such low-cost, group accidental death policies can be a useful adjunct to the coverages of individual life policies.
Term life insurance, or level premium term life insurance, is pure life insurance. The premiums you pay purchase coverage for the policy limit specified in the limits of liability for the term of the policy. There is no cash value, dividend, or investment component to term life insurance. The premiums for term life insurance, whether paid annually, semiannually, quarterly, or monthly, remain fixed throughout the term of the policy. When the term of the policy ends, you must apply for and obtain a new policy if you wish to continue to maintain life insurance coverage.
The premiums charged for term life insurance policies depend on the following primary variables: the age of the person whose life is to be insured, whether that person is or is not a smoker, other significant health issues or conditions, the duration of the term for which coverage is sought, and, the policy limits applied for.
Premiums for term life insurance have been quite low in recent years, at least for nonsmokers without any other significant health issues. There is a great deal of competition among insurers for term life business, which means low cost coverage for the consumer.
Indeed, in the not too distant past, many term life policies were issued for five or ten year terms. After that term expired, the insured would have to purchase a replacement policy, but at the higher rates charged for the older age group of which the insured was then a member. In contrast, many term life insurers are now offering twenty and thirty year level premium term life policies, including to persons in their forties, at premiums only slightly higher than those charged for five and ten year term policies for younger age groups in the recent past.
A young nonsmoker in good health employed in a nonhazardous occupation should be able to purchase a $200,000 to $300,000 term life insurance policy for only a few hundred dollars annually. A middle-aged person with the same good health characteristics should be able to purchase a term life policy for only $500 to $700 annually.
Many financial advisors advocate term life insurance as the only way to go. Their point of view is that the rates of return on the savings/cash value, dividend, or investment aspects of the various forms of whole life insurance are low compared with other investment vehicles. They believe that a person should only buy term life insurance and should invest the difference between the cost of term and whole life insurance in other more fruitful investment choices.
The primary disadvantages to term life insurance are that if you purchase relatively short-term policies (i.e., five to ten years), you will have to pay more in premiums for a replacement policy because of your increased age, assuming all other underwriting factors remain unchanged. The latter point is the other disadvantage of term life insurance, particularly as the insured starts to advance in age. If you develop a serious, diagnosed health problem, you might not be able to obtain a replacement policy at all, or only at a highly increased premium. In contrast with the various forms of whole life coverage, the policy remains in force, at level premiums, from inception until you die, as long as you pay the premiums on time.
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Note: This article was sent to us by: Walt Bielfield at 10072010
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