What options do you have when you choose life insurance?

Answer 1

There are two primary forms of life insurance, and within each, several variants.

Term life insurance is what the name suggests-coverage for a stated period of time--often 10, 15 or 20 years. It is "pure protection" in the sense that it pays a death benefit only and does not have annexed to it a savings element such as does whole life coverage. Therefore, it is less costly than whole life. The insured must die while the policy is in force for the beneficiaries to collect. If premiums are not paid, the policy lapses.

Whole life insurance is similar to term, with the exception that includes a savings element. Each dollar of paid premium goes to pay for the future death benefit and a potion goes into the cash value, which is a form of value accumulation within the policy. Note though, that in the early years of the policy, the value accumulates very slowly. This should never be considered to be an investment--insurance of all types is protection, not a wealth accumulation device. However, the cash value may accumulate over time to the point that it can be applied to the payment of future premiums such that the policy becomes self-supporting.

Among the options that are sometimes offered include:

1. Future purchase option. This gives the insured the chance to buy additional amounts of coverage at various points in his/her life, sometimes without regard to then-existing health condition. One pays an additional premium for this option.

2. Disability waiver of premium. This excuses the payment of future premiums if the insured (or other person that has contractually agreed to pay premiums) becomes disabled and is unable to work. Sometimes the disability must be full (unable to do anything for remuneration), or sometimes partial (for example, unable to do the job that one had at the time the policy was issued). The definition of the required level of disability will be outlined in the option. Again, one pays an additional premium for this option.