Life insurance is an essential part of financial planning. One reason most people buy life insurance is to replace income that would be lost with the death of a wage earner. The cash provided by life insurance also can help ensure that your dependents are not burdened with significant debt when you die.

When you buy life insurance, you want a policy which fits your needs without costing too much. Your first step is to decide how much you need, how much you can afford to pay and the kind of policy you want. Then, find out what various insurance companies charge for that kind of policy. If you compare Surrender Cost Indexes and Net Payment Cost Indexes of similar competing policies, your chances of finding a relatively good buy will be better than if you do not shop.

Six Basic Kinds of Life Insurance

Regardless of how fancy the policy title or sales presentation might appear, all life insurance policies contain benefits derived from one or more of the three basic kinds shown below. Some policies due combine more than one kind of life insurance and can be confusing.

Term Life Insurance
Endowment Life Insurance
Whole Life Insurance
Variable Life Insurance
Universal Life Insurance
Variable Universal Life Insurance

Term Life Insurance

Term life insurance is death protection for a term of one or more years. Some companies are offering policies with terms up to thirty years. Premiums on term insurance remain level during the life of the policy. Term Life Insurance has no cash value account. 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 premium dollar. Some term life 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.

Term life insurance provides coverage for a specified period of time - the term of the policy (typically ranging from five to thirty years). After this time, it is possible to renew your policy with the premium adjusted for your health and age at the time you renew. Your policy is paid out only upon death within the prescribed period of time. Term policies allow you to save substantially on premiums so you can invest the savings in a higher yielding investment.

Term life insurance policies are designed to meet a specific need for a specific period of time. The most common type today is level term (level meaning it stays the same), which has a level death benefit and a level premium. These policies are commonly used to provide protection for families until their children reach a certain age (usually 18 or 21). It is also useful as an affordable starting point - you can convert it to a universal or whole life policy at a later date.

Another type of term life insurance, decreasing term, is generally sold with a level premium and a decreasing death benefit. One common use of decreasing term is to cover a remaining mortgage - designed to decrease at the same rate your mortgage balance decreases. These types of policies are often offered as riders in connection with whole and universal life policies, with the whole or universal life policy providing the "backbone" of your overall protection plan. A number of factors will influence your decision, including your health, your budget, your immediate needs and your long term plans and goals.

Exploring all the available insurance policies, options and riders can be mind boggling. An experienced professional can analyze your situation to help you decide how much protection you need and help you design an overall insurance plan that will provide you and your family the highest level of security at the best possible pricing. Once you have a plan in mind, shopping gets a lot easier.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage.

Endowment Life Insurance

An endowment insurance policy pays a sum or income 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 and cash values for endowment insurance are higher than for the same amount of whole life insurance. Thus endowment insurance gives you the least amount of death protection for your premium dollar.

Endowment policies are payable at the death of the insured or on a specified maturity date if the insured is alive. Premiums generally are payable from the date of issue until the date of maturity but may be limited to fewer years or even to a single lump-sum payment. Premium payments on endowments are high because a large cash value is built up in a relatively short time. Endowments combine savings with insurance, and such policies may be used to provide for college education, mortgage payments, or retirement purposes. This type of policy lost popularity when competing savings mediums began paying higher interest rates in the 1970s and early '80s. More competitive interest rates have not yet restored its standing.

Exploring all the available insurance policies, options and riders can be mind boggling. An experienced professional can analyze your situation to help you decide how much protection you need and help you design an overall insurance plan that will provide you and your family the highest level of security at the best possible pricing. Once you have a plan in mind, shopping gets a lot easier.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage. For more information and rates on life insurance visit our sponsor site below.

Whole Life Insurance

Whole life insurance gives death protection for as long as you live. The most common type is called 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 nonforfeiture 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.

Whole life insurance features a level premium and level death benefit to age 100 with an accumulating cash value that increases over time until it equals the set death benefit. Whole Life covers you for as long as you live, if the premiums are paid.

Cash value is an amount of money that you are guaranteed to receive in the event of policy cancellation. Your premiums are invested on behalf of the policy, generating the build-up of the cash value. Over time, your premiums grow like any other investment and the rate or return (yield) can vary from company to company. You also have the right to borrow against the accumulated cash value for whatever reason you choose - to make purchases, cover expenses or to apply towards the premium itself (in effect paying for itself).

When you first take out the policy, premiums may be higher than you would pay initially for the same amount of term insurance. They will be smaller than the premiums you will eventually pay if you were to renew a term policy until your later years.

Whole life is suitable for long-term obligations, such as surviving spouse lifetime income needs, estate liquidity, death taxes, funding retirement needs, etc. It also provides a good cornerstone for a complete protection package for your family and your assets. A professional analysis can help you assess you current and future needs to determine the best overall life insurance approach for you.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage.

Variable Life Insurance

Variable life insurance, provides permanent protection for you and death benefits to your beneficiary upon your death. The value of the death benefits may fluctuate up or down depending on the performance of the investment portion of the policy. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum, however, a minimum cash value is seldom guaranteed. Variable is a form of whole life insurance and because of investment risks it is also considered a securities contract and is regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Variable or adjustable life insurance refers to a policy where death benefits & cash values are variable - your death benefits and premiums vary according to your investment's performance. The accumulated cash value is directed to your choice of investment accounts. Investments can include stock funds, bond funds, real estate funds or a combination thereof.

You have more control over how your premiums are invested, but you are also responsible for the performance of the policy. When investing, be sure to get a prospectus from the company and carefully review it. You will have higher death benefits and cash value if the underlying investments do well. Your benefits and cash value will be lower or may be eliminated if the investments you chose don't do as well as you expect.

A great deal of care must be taken with a variable policy. It can be a great asset to your protection as well as a decent investment. It is interesting to note that variable/adjustable life is so much like "normal" investing that agents offering it must be licensed securities dealers and registered with the U.S. Securities and Exchange Commission. Proper guidance from a seasoned professional will help you ensure you get the highest possible performance from a variable life policy.

Pros:
Allows you to participate in various types of investment options while not being taxed on your earnings (until you surrender the policy). You can apply interest earned on these investments toward the premiums, potentially lowering the amount you pay.

Cons:
You assume the investment risks. When the investment funds perform poorly, less money is available to pay the premiums, meaning that you may have to pay more than you can afford to keep the policy in force. Poor fund performance also means that the cash and/or death benefit may decline, though never below a defined level. Also, you cannot withdraw from the cash value during your lifetime.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage.

Universal Life Insurance

Universal Life insurance is a variation of Whole Life. The insurance part of the policy is separated from the investment portion of the policy. The investment portion is invested in bonds and mortgages, the investment portion of Universal Life is invested in money market funds. The cash value portion of the policy is set up as an accumulation fund. Investment income is credited to the accumulation fund. The death benefit portion is paid for out of the accumulation fund. Unlike Whole Life Insurance, the cash value of Universal Life Insurance grows at a variable rate. Normally, there is a guaranteed minimum interest rate applied to the policy. No matter how badly the investments go by the insurance company, you are guaranteed a certain minimal return on the cash portion. If the insurance company does well with its investments, the interest return on the cash portion will increase.

Universal life is like term life insurance with an investment attached. It is a kind of flexible policy that lets you vary your premium payments and/or adjust the face amount of your coverage. The premiums you pay (less expense charges) go into a policy with an attached investment generally consisting of a short-term money instrument yielding a modest return.

If your yearly premium payment plus the earnings on your account is less than the total charges, your account value will become lower. If it keeps dropping, eventually your coverage will end. You may need to increase your premium payments or lower your death benefits to keep the policy in force. Even if there is enough in your account to pay the premiums, continuing to pay premiums yourself means that you build up more cash value.

Generally, you'll have lower premiums than with whole insurance but still keep most of the same benefits. However, the cash value build-up is not guaranteed and depends heavily on the your invested premiums' performance. Basically, cheaper rates but less certainty about a cash value.

Universal life can be a very solid base for an overall protection strategy and can easily and economically be supplemented by other policies to ensure total protection. An experienced professional can assist you in constructing a strategy to bring you the security only well planned protection can bring.

Pros:
Similar to whole life insurance. More flexible premiums. Fund for younger buyers who may have fluctuations in their ability to pay.

Cons:
If the insurance company does poorly with its investments, the interest return on the cash portion of the policy will decrease. In this case, less money would be available to pay the cost of the death benefit portion of the policy.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage.

Variable Universal Life Insurance

Variable universal life insurance pays your beneficiary a death benefit. The amount of the benefit is dependant on the success of your investments. If the investments fail, there is a guaranteed minimum death benefit paid to your beneficiary upon your death. Variable universal gives you more control of the cash value account portion of your policy than any other insurance type. A form of whole life insurance, it has elements of both life insurance and a securities contract. Because the policy owner assumes investment risks, variable universal products are regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Variable universal life insurance policies provide permanent life insurance coverage and any cash value accumulates on a tax-deferred basis. The death benefit and cash value depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. Variable Universal Life insurance policies provides insurance to protect what you have today and investment options to help you provide for what you want tomorrow.

Variable universal life (VUL) insurance, can be viewed as having two parts. The first part goes to pay for the cost of insurance. The second part is allocated to subaccounts that invest in some combination of stocks, bonds, and cash-equivalent vehicles selected by you, each having the potential to accumulate "cash value" on a tax-deferred basis. There may also be a fixed-interest account option in which to allocate funds.*

Over time, your need for life insurance may decline. At some point, you may decide to tap into the policy's cash value or borrow against it to supplement your retirement income - or use it in other ways.**

The reason to purchase life insurance is to provide a death benefit. Since life is for the living, why buy a policy that doesn't pay off until after you're gone? Variable universal life insurance can help protect your family now and potentially improve your financial situation during your lifetime.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage.

* The investment return and principal value of variable subaccounts will fluctuate. Your cash value, and perhaps the death benefit, will be determined by the performance of the chosen subaccounts. Variable universal life insurance policies typically include mortality and expense risk charges, administrative fees, and fund expense charges.

** Withdrawals may be taxable and subject to surrender charges. Policy loans and withdrawals will reduce the policy's cash value and death benefit. Loans are subject to interest charges.