| There are four varieties of term life: Annual Renewable Term (ART), Level
Term (LT), Modified Level Term (MLT), and Decreasing Term (DT). The
differences between them are in the way the premiums and death benefits are
structured. |
| Disadvantages
* Much more expensive than term life. You have a much smaller death
benefit for the same amount of coverage.
* Even though you may borrow your cash value, it is really
disadvantageous to do so because your policy loans will result in
interest charges and may reduce your death protection unless you repay the
loan. * The investments in your policy may realize a rate of return far
below investments made separately from a life insurance policy. |
| Traditional Whole Life, is the original cash-value policy. The insurance
stays in force as long as you pay your premium, i.e., it is permanent. The
premium you pay is fixed and depends on your age when you buy the
insurance. The insurance company will invest your premiums and you can
borrow from the cash value built up if you so wish at a favorable rate of
interest. |
| The amount of insurance you need depends on a number of factors such as
your mortgage payments, and the cost of education, health care and daily
living expenses of your family. You will also need to consider questions
such as: Is your spouse working? If not, will he or she require job
training to be able to provide enough income for the whole family? Will
your house be sold or retained? What effect will inflation have on your
estate? How many years will your children be living at home? Answers to
these questions will help in determining the amount of insurance you should
buy. Several rules of thumb and formulas are available to use as a guide
in deciding the amount of life insurance coverage you need. One of the
simplest is to take your annual salary, multiply it by 5, and minus the
coverage you already have. |
| Term Insurance
Term insurance is the purest form of life insurance, consisting only of a
death benefit without the frills. It is for a fixed term varying from
one to 20 years, after which it must be renewed. If you die during the
term, your benefits are paid to your beneficiaries. Term life insurance
premiums are cheaper compared to whole life which makes it possible for you
to afford more coverage with the same amount of premium. |
