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Life Insurance: Answers to Your Questions

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Q. What is a whole life insurance policy?

A.   Explanation: A whole life insurance policy is a policy that pays a benefit to a beneficiary in the event of your death. It is called “whole life” because you usually pay the premium your whole life, and the benefit covers you until either you die or the policy matures. If the policy matures (called endowing) during your life time, the company will give you a check for the entire face value of the policy. Most current whole life policies mature at age 100 although with the newer policies, you do not have to take the money until age 100. However, you pay no additional premium  once the policy has matured.

In addition to covering you for your entire life, a whole life policy builds cash value which can be used as emergency funds, converted into an annuity later in life, or simply surrendered for the cash. A whole life policy is the most secure type of policy you can buy, although it is also the most expensive.  

Q. What is term life insurance

A.   A term policy is the least expensive life insurance during the period of the term. The insurance covers you for a set time period which could be 5, 10, 15, or 20 years. A few companies still offer a thirty year term if you are fairly young. The premium on  a term policy will remain unchanged during the term, as will the death benefit. Because you are only paying the cost of insurance and fees, the premium is very low. When the term expires, you have the option of converting the policy to some other form of insurance or of renewing it. However, the renewal fees are extremely highoften as much as 300% or more, and they keep increasing every year after the initial Term. Term insurance is not intended to be a life long plan, but it can be a good way to go if you need to protect a mortgage or other debt, or need to make sure a family will be taken care of. In later years when the children are grown, you may not need the high face value of the term policy.

Q. What is universal life insurance?

A.   Universal Life Insurance blends the features of Term and whole life for a policy that can last your entire life but will be less expensive than whole life. The interest which the policy earns is based on the economic criteria which can vary from year to year. The policy earns cash value, is available in high face amounts like Term and Whole Life, and is flexible. That is, you can change the premium or the face value as your needs change. If you want to save money but still have lifelong protection, Universal is an excellent choice.  

Q. What is no load life insurance?

A.   Part of the cost of life insurance is the annual fees. These fees pay commissions to the agents along with the cost of advertising, creating the policies and other administrative costs of the company. With some companies, the fees are front loaded, meaning a higher percentage of your premium is used to pay fees in the first year of the policy. For people who understand insurance, one way to save on the fees is to purchase no-load insurance. The fees are thus minimized and your premium is not used to pay commissions to the agent. In some cases, you pay the agent directly for services rendered. In others, you simply purchase the insurance on your own either through the mail or through telemarketing. A word of caution: not all policies that come to you in the mail or no-load. Also, many mail order policies have fine print clauses that the average person does not understand.

Q. What type of life insurance is best for me?

A.   The only way to know what type of insurance is best for you is to analyze your own situation and finances. If you have current debt, but are also putting money into a retirement plan or other investments, you may not need as much insurance later in life. However, if you want to leave a legacy to family members or to a charity, or if you want assets that can increase your retirement income, you should consider either a whole life or a universal. Finally, although today’s Universal policies are very safe, if you want the security of something that is guaranteed to remain unchanged during your life time, your choice would be a whole life.

A final word: Life insurance, even with the best companies, is often confusing with language the average person never learned in school. Unless you are doing little more than purchasing a burial policy, you should always work with a licensed agent. You are much less likely to be disappointed because the agent has a legal responsibility to made sure you understand the policy and to ascertain that it meets your needs.