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Personal Lines - Life Insurance |
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There are two basic types of
life Insurance – term insurance and permanent insurance. Armor Assurance Group
offers both types of
life insurance from several insurance providers. Call your Armor Assurance Group
representative to get answers to your life insurance questions.
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Term
Insurance
Term Life insurance provides protection for a
specified period of time, typically from one to 30 years. It pays a death benefit only if
you die during this term. Some policies can be automatically renewed at the end of the
coverage period, and some can be converted to permanent insurance without need for a
medical exam.
There are several different types of term insurance you can consider:
- Renewable Term Insurance.
These policies have a provision allowing you to renew coverage at the end of the term
without having to show evidence of insurability. The company has to renew your policy even
if your medical condition has deteriorated. However, the premium rate will rise with each
renewal.
- Convertible Term Insurance.
These policies allow you to convert your term coverage into a permanent policy without
providing evidence of insurability. Premiums for convertible policies are usually higher
than for nonconvertible policies. Once converted, the premiums for the permanent coverage
will be higher than those of the term policy with the same death benefit. However, the
permanent policy premiums will remain the same while the term premiums will rise.
- Level Term Insurance.
These policies provide a fixed premium for a certain number of years, usually 10
to 30
years, while the death benefit remains unchanged. The death benefit is the amount the life
insurance company will pay, as stated in the policy, when the insured person dies. The
advantage is that the premium is significantly lower than whole
life insurance and remains unchanged for the life of the
policy. The
disadvantage is that there is no accumulated cash value and
there is no benefit paid at the end of the policy term if the
insured person is living. Most term policies are renewable
at the end of the term but the premiums will be significantly
higher. If another policy is wanted premium rates will be
based on current age and insurability/health. They will
likely be higher than the previous term premiums because of the
difference in age. Premiums get higher as we get older.
- Decreasing Term Insurance.
The death benefit in this type of policy decreases over its term. For example, you might
start with $100,000 of coverage and the amount of coverage decreases by $10,000 each year
for 10 years. The premium usually remains the same over the term of the policy. This type
of insurance has a lower premium than level term and is useful
for covering mortgages and other decreasing cost expenses.
- Increasing Term Insurance.
This kind of policy starts at one level of death benefit which gradually increases over
the life of the policy. You may start with a $100,000 policy and increase the death
benefit $10,000 each year for 10 years. The premium will increase each year. This kind of
policy may be appropriate if you see your insurance needs growing in coming years because,
for example, you expect to have more children.
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Permanent
(cash value) Insurance
Permanent insurance provides life-long protection
as long as you continue to pay premiums up to age 100. The premiums are based on your age at the time of
purchase, and generally remain level. They do not increase as you age. Therefore, the
younger you are when you buy the policy, the lower the premium you will pay for the life
of the policy.
Because premiums remain level, permanent insurance is more expensive than term insurance.
But permanent insurance accumulates cash value, which may be refundable upon surrender of
the policy. While the policy is in force, cash values can be borrowed against or used to
pay premiums.
The proceeds of many permanent life insurance policies can be used to ease the financial
burden of catastrophic illness, terminal illness or long-term care. These accelerated
benefits may be offered as part of the basic policy or as a rider to an existing policy.
With a permanent life insurance policy, you may borrow up to the cash value at an interest
rate (fixed or adjustable) stated in the policy. Any unpaid interest is added to the loan.
Any unpaid loan, including interest, will be deducted from the death benefit. The cash
value can be used to pay premiums for a period of time, keeping the stated death benefit,
or it can be used to purchase paid-up insurance in a lesser amount with no further
premiums due.
There are four basic types of permanent insurance:
- Whole Life.
Sometimes also called life or ordinary life, this policy has a fixed guaranteed rate and
develops guaranteed cash values. There are two variations on traditional whole life:
- Joint Whole Life: The policy insures two lives instead of one. Also called
first-to-die coverage, the policy pays the death benefit to the surviving insured person
when the first one dies. This is often purchased by a husband and
wife to provide for the surviving spouse.
- Survivorship Life: The policy insures two people and pays a death benefit only
when the second person has died. It is designed for married couples who want to provide
funds to pay estate taxes that may be due after their deaths. Also called second-to-die
coverage.
- Universal Life.
This policy has more flexibility. Within certain limits, you can change the death benefit,
the amount of premium and payment frequency. Unlike whole life, this is an "interest
driven" policy, which normally pays a minimum guaranteed interest
defined in the policy. If
the interest rates are continuously low, additional premiums may have to be paid to avoid
a lapse of coverage. Most Universal Life policies have a
premium rate that is guaranteed to keep the policy in force
regardless of the interest rate.
- Variable Life.
This policy has death benefits and cash values that vary with the performance of an
underlying portfolio of investments that you select. The death benefit and cash value are
not guaranteed. They can go down as well as up depending on the
performance of the underlying investments. There may be a guaranteed minimum
death benefit depending on the policy.
- Variable Universal.
This policy combines the premium and death benefit flexibility of universal life with the
investment flexibility and risk of variable life.
On all of the above policies, riders are available at an additional cost for the
following coverages:
- Disability waiver of premium.
A feature added to some life insurance policies providing for the waiver of premium, and
sometimes payment of monthly income if the policyholder becomes totally and permanently
disabled.
- Accidental death.
A provision in a life insurance policy for payment of an additional benefit if death is
caused by an accident. This is sometimes called double indemnity.
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Key
life insurance terms
It is important to understand
some of the key terms in life insurance policies, before you purchase one:
- Accelerated death benefit.
Some insurers offer you the ability to collect life insurance benefits while you are still
alive to cover the costs of catastrophic illness. Accelerated death benefits, also known
as living benefits policies, are generally offered as part of the policy or as a rider to
an existing insurance contract. They will pay you either a percentage or all of your death
benefit under certain specific circumstances, including terminal illness where you have a
life expectancy of less than 12 months, contraction of a disease or need for long-term
care.
- Cash value.
The savings portion of your premium in a permanent insurance policy. The cash value is
invested in stocks, bonds, real estate and other investments by the insurance company and
your returns grow tax-deferred. If you surrender the policy by stopping premium payments,
you will be paid whatever remaining cash value is in the policy.
- Endowment.
An endowment plan provides a particular death benefit whether or not the insured person
survives to the end of a specified term. If the person dies before the maturity date, the
policy’s death benefit is paid to the beneficiary. If the insured person is still
alive on that date, the benefit is paid to the policyholder. Changes in tax law means that
most of these plans no longer qualify for advantageous tax benefits because these plans
are not considered to be life insurance for tax purposes.
- Medical Information Bureau (MIB).
A clearinghouse used by the life insurance industry to screen insurance applicants’
medical histories. This ensures that applicants do not withhold medical information from
one company that they have given to another when applying for life insurance. The medical
history is only given to an insurance company if you have applied for insurance with that
company. No company is permitted to base its decision on approving or rejecting an
application solely on the MIB report, but it can be a key determinant of the insurance
company’s decision. You have the right to know what is listed on your MIB report. You
can contact the MIB and get a copy of your report for a small fee at P.O. Box 105, Essex
Station, Boston, Massachusetts 02112, 617-426-3660, or at http://www.mib.com
- Policy loan.
Loans against the accumulated cash value in a policy. The interest rate on the loan may be
fixed or adjustable. You can repay the policy loan at any time without penalty. If you
don’t pay the interest due, it is added to the loan amount. If the unpaid interest
and loan amount exceed the cash value in the policy, the policy will be terminated without
any cash value payout. If you die with an outstanding policy loan, the amount of the loan
plus interest will be deducted from the death benefit.
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© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED - used by permission |
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