Life Insurance Agent's Precious Experience Share

Life Insurance is an insurance product that pays at the death of the insured. It really should be called "Death Insurance," but people don't like that name. But it insures the death of an individual. Actually, what is insured is the economic loss that would occur at the death of the person insured.

Those economic losses take a lot of different forms, such as:

- the income stream of either "breadwinner" in a family
- the loss of services to the family of a stay-at-home-mom
- the final expenses at the death of a child
- final expenses of an individual after an illness and medical treatment
- "Keyman" coverage, which insures the owner or valuable employee of a business against the economic loss the business would suffer at their death
- estate planning insurance, where a person is insured to pay estate taxes at death
- "Buy and Sell Agreements," in which life insurance is purchased to fund a business transaction at the untimely death of parties in the transaction
- Accidental death insurance, in which a person buys a policy that pays in case they die due to an accident
- Mortgage life insurance, in which the borrower buys a policy that pays off the mortgage at death - and many more.

Life insurance has been around for hundreds of years, and in some cases, has become a much better product. The insurance companies have been able to develop mortality tables, which are studies of statistical patterns of human death over time...usually over a lifetime of 100 years. These mortality tables are surprisingly accurate, and allow the insurance companies to closely predict how many people of any given age will die each year. From these tables and other information, the insurance companies derive the cost of the insurance policy.

The cost is customarily expressed in an annual cost per thousand of coverage. For example, if you wanted to buy $10,000 of coverage, and the cost per thousand was $10.00, your annual premium would be $100.00.

Modern medicine and better nutrition has increased the life expectancy of most people. Increased life expectancy has facilitated a sharp decrease in life insurance premiums. In many cases, the cost of insurance is only pennies per thousand.

There is really only one type of life insurance, and that is Term Insurance. That means that a person is insured for a certain period of time, or a term. All of the other life insurance products have term insurance as their main ingredient. There is no other ingredient they can use. However, the insurance companies have invented many, many other life products that tend to obscure the reasons for life insurance. They also vastly enrich the insurance companies.

Term Insurance

The most basic life insurance is an annual renewable term policy. Each year, the premium is a little higher as a person ages. The insurance companies designed a level premium policy, which stopped the annual premium increases for policyholders. The insurers basically added up all the premiums from age 0 to age 100 and then divided by 100. That means that in the early years of the policy, the policyholder pays in more money that it takes to fund the pure insurance cost, and then in later years the premium is less than the pure insurance cost.

The same level term product can be designed for terms of any length, like 5, 10, 20, 25 or 30 year terms. The method of premium averaging is much the same in each case.

But this new product caused some problems. Insurers know that the vast majority of policyholders do not keep a policy for life. Consequently the level term policyholders were paying future premiums and then cancelling their policies. The insurance companies were delighted because they got to keep the money. But over time, they developed the concept of Cash Value.

Cash Value Insurance

With Cash Value insurance, a portion of the unused premium you spend is credited to an account tied to your policy. The money is not yours...it belongs entirely to the insurance company. If you cancel your policy and request a refund, they will refund that money to you. Otherwise, you have other choices:

1. Use the cash value to buy more insurance
2. Use the cash value to pay existing premiums
3. You may borrow the money at interest
4. If you die, the insurance company keeps the cash value and only pays the face amount of the insurance policy.

So, does this cash value product make sense? My response is "NO!"

Cash Value Life Insurance comes in lots of other names, such as:

- Whole Life
- Universal Life
- Variable Life
- Interest Sensitive Life
- Non-Participating Life (no dividends)
- Participating Life (pays dividends)

Many life insurance agents and companies tout their products as an investment product. But cash value insurance is not an investment. Investment dollars and insurance premiums should never be combined into one product. And investment dollars should NEVER be invested with an insurance company. They are middle men. They will take your investment and invest it themselves, and keep the difference.

Think about the methods that agents use to sell life insurance, and compare them to any other type of insurance. What you'll see is that life insurance sales tactics and techniques are ridiculous when compared to other insurance products.

Would you ever consider buying a car insurance policy, or homeowners policy, or business insurance policy in which you paid extra premium that the insurance company kept, or made you borrow from them? But, curiously, life insurance agents have been wildly successful convincing otherwise intelligent people that cash value life insurance is a good product to buy.

Care to guess why insurance agents have aggressively sold cash value insurance and eschewed term insurance?

Commissions.

The insurance companies have become vastly wealthy on cash value insurance. So, to encourage sales, they pay huge commissions. Term insurance commissions can range from 10% to 50%, sometimes even 100%. But cash value insurance commissions can be up to 100% of the first year's premium, and handsome renewal commissions for years after.

But it's not just the commission rate that matters. It's also the premium rates that come into play. Term insurance is FAR CHEAPER than cash value insurance.

Here's an example of a 30 year old male, non-smoker, buying $100,000 of coverage:

Term insurance costs $0.50 per thousand for a premium of $50.00. At 100% commission, the commission would be $50.00.

Cash Value insurance costs $12.50 per thousand for a premium of $1,250.00. At 100% commission, the commission would be $1,250.00.

So you see that it would be easy for an agent to place his own financial well-being ahead of the well-being of his client. He would have to sell 25 term policies to make the same commission as only one cash value policy.

But, in my opinion, that agent would have violated his fiduciary duty to the client, which is the duty to place the client's needs above his own. The agent would also have to set aside his conscience.

My opinion is that life insurance agents operate from one of three positions:

1. Ignorance - they simply don't know how cash value insurance works.
2. Greed - they know exactly how cash value insurance works and sell it anyway.
3. Knowledge and Duty - they sell term insurance.

Which agent do you want to do business with?

How do I know this stuff? Because I sold cash value life insurance early in my career.

When I started as an insurance agent in 1973 I knew absolutely nothing about how life insurance worked. The insurance company taught me to sell whole life insurance, and to discourage clients from term insurance. But, after some time of reading and research, I learned that cash value insurance is a bad deal. I began to sell only term insurance. I refused to set aside my conscience. I also went back to some early clients and switched their policies from cash value to term.

The insurance company fired me for that decision.

I found a new insurance company that only sold term insurance and also paid high commissions. I made a good living selling term insurance, so I know it can be done.

So, as you shop for life insurance, please accept the advice of an old agent. Never, never, ever buy cash value life insurance. Buy term insurance.

Basics of Life Insurance - Learn Before Buy

Many of us buy life insurance because we want to make sure that our loved ones, especially dependents, remain financially secure after we die. Income replacement is the No. 1 reason people buy life insurance.

Non-earning caregivers also have an important - and often overlooked - economic value that should be covered by life insurance.

Life insurance is also purchased by those interested in achieving specific business or estate-transfer goals.

There are many types of life insurance policies depending on your goals, and there are huge price differences among different companies offering identical coverage. Policies are available from hundreds of life insurance companies in the United States. Most financial planners recommend that each family income provider carry no less than 10 times their annual income in life insurance.

Here's an orderly way to go about shopping for life insurance:

• 1) Assess your needed life insurance amount..
• 2) Decide on the most appropriate policy type for your goals.
• 3) Choose possible companies by setting high standards for financial stability ratings.
• 4) Shop until you find the best price.
• 5) Look at ways to get the best possible life insurance rate.

Life insurance is a long-term proposition, so you should pay particular attention, at time of purchase and throughout the life of the policy, to the financial stability ratings of your life insurance company. Ratings indicate a company's ability to pay claims.

Assessing your life insurance needs

The first step in life insurance planning is to analyze your life insurance needs - meaning the economic needs of dependents left behind. A great way to determine your coverage needs is to use an online calculator.

• Before purchasing a life insurance policy, consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your final medical bills and funeral costs? Would your family have to relocate or otherwise change their standard of living after losing your income? The assumption of immediate death is necessary to determine the current life insurance needs for a family or individual.

• Add in the longer term financial needs of the remaining family members, such as: children's expenses, income for the surviving spouse, mortgage and other debt payoffs, college education funds and an additional emergency fund.

Because life insurance needs change over time, your life insurance amount should be reevaluated periodically. We recommend a review at least once every five years or whenever you experience a major life event such as a change in income or assets, marriage, divorce, the birth or adoption of a child, or a major purchase such as a house or business.

In theory, you should have a declining need for life insurance as you age because fewer people remain dependent upon you for income support. Exceptions would be protecting a business entity or paying taxes on a large estate for heirs. If the purpose of buying life insurance is to pay estate taxes, then you'll need permanent life insurance, which is in-force as long as you live and pay premiums.

Policy choices

Life insurance policies [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x] are divided into two main types:

• Term life insurance, which provides only death protection without any side funds or "cash values" (offering the least expensive cost per $1,000 of death coverage purchased).
• Permanent life insurance, which has "cash value" accounts in which a return-on-investment component becomes an often complex and expensive part of the policy (most expensive cost per $1,000 of coverage).

Term life insurance

The simplest of all life insurance to understand and the cheapest to buy: Term life insurance provides death benefit protection without any savings, investment or "cash value" components for the term of the coverage period.

Term life insurance is available for set periods of time such as 10, 15, 25 or 30 years. With "annual renewable term life," your policy automatically renews each year and premiums increase as you get older. Choose "level term insurance" if you want your premium to stay the same for the duration of the policy. Also available is "decreasing term insurance," where premiums remain level but your death benefit declines over time. This is good if you want to cover only a specific debt that decreases, such as a mortgage or business loan.

As long as you pay your premiums, the company cannot cancel you.

Term life insurance is a popular choice because of the long rate-guarantee periods and because of the ability to get a low cost life insurance policy. However, if you get to the end of your policy term and still need life insurance, you'll need to shop for a new policy, which will then be priced based on your older age and health status.

Choosing an initial rate-guarantee period is easy: Match the period of time your dependents need your income to the available rate-guarantee periods. For example, if your children are young and you have decades to go on your mortgage, try 30-year term life. If your children are leaving the nest and your home is paid off or nearly paid off, 10-year term might fit the bill.

Other policy provisions that drive the popularity of term life insurance are guaranteed renewal and guaranteed convertibility.

• Guaranteed Renewal. Before you buy a term life policy, ask the agent or company to confirm to you that the policy contains a guaranteed renewable option, which grants you the right to continue coverage beyond the initial rate-guarantee period without a medical exam. This feature, found in most term life policies sold today, is extremely important should you become sick and uninsurable toward the end of your rate-guarantee period.

For example, say that you've been paying $800 per year on a $500,000, 20-year level term life policy and develop cancer near the end of the 20-year period, thus making you uninsurable. Assuming that you want to continue the coverage, a guaranteed renewable clause would allow you to continue the coverage beyond 20 years on an annual renewable basis without an exam, albeit at a much higher annual premium of, say, $8,000 in year 21, $11,000 in year 22, and so on.

You may have sticker shock right now but these premiums don't look so high when you are very sick and uninsurable but still in need of coverage.

• Guaranteed Convertible. Another built-in feature of most term life policies is the right to convert your coverage to any cash value policy that the company might offer at current rates without having to take another physical exam. This feature may be of use in the future if you decide you want cash value life insurance.

If you'd like term insurance to cover you for a certain period of time but you're confident you'll outlive the policy, consider a "return of premium" (ROP) term life insurance policy. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back (tax-free). Return of premium term life insurance generally costs 50 to 150 percent more than a comparable term policy but it provides a way to hedge your bets no matter what happens.

Term life insurance is widely available on the Internet, from direct-to-consumer life insurance companies and from insurance agents and brokers.

Cash value life insurance

If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings account (not insured by any federal agency) or stock market investment, you might consider cash value life insurance such as whole life, universal life or variable life. But be prepared to pay much higher premiums per $1,000 of coverage precisely because you are now funding a cash value account and paying fees and expenses.

In many cash value policies, the annual premium does not increase from year to year. Universal life policies allow you to fluctuate or even skip premium payments, which in turn adjusts your death benefit amounts.

Unlike term life insurance, which is easily compared online, cash value insurance is often marketed by agents and brokers in a face-to-face setting, where needs and strategies can be discussed.

Because of the complexity and dizzying array of possible outcomes for permanent life insurance, regulators insist that cash value insurance be sold using pre-approved illustration formats. These illustrations can run to 15 or more pages. Cash value life insurance illustrations are divided into two major sections: guaranteed values and projected or "illustrated, non-guaranteed" amounts. Illustrations can be complex and hard to compare in an apples-to-apples way.

Pay particular attention to the guaranteed death benefit and premium-payment sections because these columns contain the actual company promises. If you don't like what you see there, walk away.

Another caveat: Many cash value policies contain harsh penalties for surrendering the policies in the early years. Changing your mind within the first few years is an expensive decision.

Whole life insurance

Ordinary whole life insurance offers "permanent protection" with a cash value account that grows over time. Whole life provides a level death benefit and level premiums throughout your life and for as long as you continue to pay the premiums. For example, a healthy 40 year-old female might pay $4,200 per year for a $500,000 whole life policy. The premium remains level at $4,200 per year for the rest of her life and, in the event of death at any age, the policy will pay $500,000 to her beneficiary.

Whole life also contains a cash value account that builds over time, slowly at first and gaining steam after several years. You can withdraw your cash value or take out a loan against it, but remember, if you die before you pay back the loan, the death benefit paid to your beneficiaries will be reduced. For example: Susan has a $500,000 whole life policy in force and, over the years, has borrowed continually from the cash value. Her total loan amount and accrued interest totals $300,000. When Susan dies, her beneficiary will receive $200,000 because the life insurance company will first pay itself back from the death benefit.

Understand what your beneficiaries will receive upon your death. If you have a traditional whole life policy, your beneficiaries receive only the death benefit no matter how much cash value you've built up. Other payout options available for higher premiums are:

• Death benefit plus cash value
• Death benefit plus return of premium

Whole life policies can be issued as "participating" or "nonparticipating." Participating policies typically cost more but may return annual dividends if the insurer has a good financial year. Dividends are never guaranteed. Nonparticipating whole life insurance offers no dividends.

Buyers of whole life insurance like the certainty of fixed premiums with a known death benefit for life. They also appreciate the "forced savings" component and watching their cash value account build up.

Universal life insurance

This kind of policy offers greater flexibility than whole or term life. Universal life has many moving parts to understand before you buy.

After your initial premium payment, you can reduce or increase the amount of your death benefit. Also, after your initial payment, you can pay premiums any time and in any amount, as long as you don't miss a minimum payment level. In some cases, there are limits to how much extra you can pay in advance. If you choose to increase your death benefit, you may have to provide medical proof that your health has not deteriorated.

You will need to manage these policies to maintain sufficient funding, especially because the insurance company can increase charges.

Some new universal life policies perform like term life insurance: They can be configured at the time of purchase to provide both level death benefits and level premiums that are guaranteed for life as long as you pay the scheduled premium.

Variable life insurance

Variable life offers a death benefit with a side fund that operates like an investment account. It shifts the uncertainties of investment gains and losses to the policyholder.

The insurance company invests your premiums and offers you a choice of funds in which your money will be invested. Returns are not guaranteed. The amount of money your beneficiaries will receive and the cash value of your policy depend on how well the underlying accounts perform. Theoretically, the cash value can go down to zero and, if so, the policy will terminate. Some variable life policies will guarantee a minimum death benefit.

Other permanent life insurance considerations

When your cash value account grows large enough, it can be used by the insurer to pay your premiums for the rest of your life. This is known as being "paid up." You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support. Your policy illustration will show you how long it may take for your whole life policy to be "paid up."

If you no longer want your whole life policy, you can surrender it to receive the current cash surrender value or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance protection for a short time.

Riders add benefits

You can add riders to your life insurance policy that guard against a number of unpleasant situations. Your insurer will have its own list of available riders, but here are a few:

• Accelerated death benefit rider (aka living benefits rider): Pays the benefit early if you become terminally ill.
• Accidental death benefit rider: Pays an extra benefit if you die as the result of an accident.
• Long term care rider: Pays for long term care expenses should you not be able to do some of the "activities of daily living," such as dressing or toileting.
• Waiver of premium rider: Waives premium payments should you become totally disabled.

How life insurance is priced

Your life insurance rate is based on your life expectancy, the face amount you request and the length of the policy, whether it's the duration of your life (whole life) or a specific period (term life). Obtaining a low cost life insurance policy depends, in large part, on your current and past health.

Because your current and past health conditions impact your life expectancy, insurers want to know as much as possible about your health condition. Common conditions such as high blood pressure, heart disease, obesity, cancer and depression can all raise your life insurance rate or even result in a declination.

Based on your medical history, you'll be grouped into a category such as "preferred plus," "preferred," "standard" and "substandard." Your category ultimately determines your premiums.

Insurance buyers with severe health conditions or a combination of conditions can find it hard or impossible to find life insurance. They are known as "impaired risks." Local agents may not be experienced enough to find a company that specializes in insuring people with certain medical conditions. Fortunately, impaired-risk specialists have expertise in knowing where to direct applications for folks with medical conditions.

The life insurance buying process

The life insurance applications process is paper-intensive, can take weeks and often seems intrusive for people who value their privacy. A face-to-face paramedical examination is generally required for policies in excess of $100,000, which means, at minimum, giving of both blood and urine samples to the paramedical professional.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history. Do you intend to scuba dive? Have you had parents or siblings with heart disease or cancer before age 60? Have you ever taken any medicine for anxiety or depression? These, and more, are the kinds of questions to expect.

Sometimes multiple interviews are required in order to verify your information. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you can verify the first set of answers. Regardless of the type of life insurance you buy, most policies require you to meet certain guidelines regarding your lifestyle and health history.

If it sounds tempting to shortcut this process by fudging on an answer or withholding information, don't do it. It's a crime in all 50 states to lie about or conceal information on a life insurance application. Besides, policies obtained through fraud can be voided at claim time.

Insurers will likely report your medical exam results (reported as numbered codes) to the Medical Information Bureau (MIB), which maintains a database of those who have applied for life insurance in the last seven years. If you've given different answers to medical questions in the past, it will raise a red flag with the MIB. The goal of the MIB database is to reduce fraud.

All standard life insurance policies generally cover death by any cause at any time in any place, except for death by suicide within the first two policy years (one year in some states).

If you don't care to go through the underwriting process, you have two other, more expensive, options:

• Simplified issue life insurance can be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are healthy, or even if you have some negative medical history, an underwritten policy is still going to be your least expensive.
• Guaranteed issue life insurance is sold to anyone who applies (up to an age limit) and is by far the most expensive way to purchase life insurance. This should be considered only by those who are declined for everything else but still need life insurance. These policies have graded death benefits, meaning your beneficiaries won't receive the full death benefit until several years into the policy.

In naming a beneficiary, keep in mind that the life insurance company will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, absent of a financial relationship, will not do.

Working with an agent

After reviewing the various life insurance policies available, you might still be unsure about which best meets your needs. The American Council of Life Insurers (ACLI) recommends consulting an insurance agent. ACLI spokesman Jack Dolan says an agent can recommend policies that will meet your needs. "Look at the recommended policy with care to be sure it fits your personal goals," Dolan says.

Carefully study your agent's recommendations and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides.

Insure.com offers these recommendations for deciding which type of life insurance to purchase:

If your agent recommends a term life policy, ask:

• What is the Standard & Poor's, A.M. Best, Fitch, Moody's and Weiss ratings of this insurance company?
• What is the initial rate-guarantee period? Is this policy renewable past the initial rate-guarantee period without a physical exam? If so, what are the premiums?
• Is this policy convertible to permanent insurance without a physical exam? If so, for what period of time do I have the right to convert?

If your agent recommends a cash value policy, ask:

• What is the Standard & Poor's, A.M. Best, Fitch, Moody's and Weiss ratings of this insurance company?
• Can you tell me, in writing, why you are recommending cash value insurance for me at this time?
• Why should I combine my life insurance protection needs with my investment objectives?
• Can you please prepare an analysis for me that shows the true cost of this cash value insurance policy over 5, 10, 15, 20, 25 and 30 years vs. buying term life and investing the difference in long term bonds over those same time periods?
• How much is your first-year commission on this proposed cash value policy vs. your commission on an equivalent term life insurance policy?
• Are these proposed annual premiums within my budget?
• Why do you think that I can commit to paying these premiums over the long term, perhaps decades?
• How much will I receive if I surrender the policy?

Life Insurance Basics - Guide to Read Before Going Anywhere

Life Insurance Basics - Guide to Read Before Going Anywhere

If you're shopping around for life insurance, you start with two big questions: How much insurance do I need? And what type of policy should I buy?

When you've calculated your short- and long-term obligations, it's time to decide what type of policy is right for you: term life or whole life insurance.

Term life insurance provides coverage for a specified period of time, such as 10, 15 or 20 years; premiums go up over time unless you buy a "level term" policy, which guarantees that premiums stay the same. It's possible that you could outlive the term of your policy, in which case your policy expires and you'd have to shop for another policy if you wish to still have coverage.

With a whole life policy (also called permanent insurance), you don't have to worry about possibly outliving your policy term because your contract gives you coverage for your entire life, as long as the premiums are paid. With a whole life policy, unlike term life, you also build up "cash value" in the policy that you can tap in the future.

Premiums are significantly higher for permanent insurance than term life due to charges and fees (see sidebar) that you don't pay with term life.

Cash value is a crucial selling point for whole life: It's an account within your policy that builds up over time, tax-deferred, fueled by a portion of your premiums and interest paid by the insurance company. In fact, the whole life contract is designed for you to take advantage of that money in the future. When you die, your beneficiaries receive the death benefit, not the cash value, with the exception of some universal life policies.

Whole life insurance policies [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x] build up cash value slowly at first but then pick up the pace after several years, when your earnings start to grow faster than your "mortality" cost (the cost of insuring you). If you would like whole life insurance explained in more detail, your life insurance agent should be able to show you a few types of policy illustrations.

Whole life could be an attractive option for any of these reasons:

• Others are relying on you for long-term financial support.
• You're worried about outliving a term life policy and being unable to buy further insurance due to age or deteriorating health.
• You want to build up cash value in addition to protecting your beneficiaries.
• You want to create an estate for your beneficiaries after your death.
• Your beneficiaries need the benefit to pay estate taxes on other assets.

"Whole life insurance is suited for anybody who loves somebody," says Scott Berlin, senior vice president in charge of the Individual Life Department at New York Life Insurance Co. "Whole life does two things for you: protects your family and allows you to save for the future."

Berlin says whole life's advantages are that you don't have to worry about outliving your policy (as is possible with term life) and there is the "forced savings" component of the cash value account, which grows tax-deferred. Once your cash value is built up, you can access it for anything - retirement, your child's college tuition or the vacation you've always wanted. Whole life policies are also eligible to earn dividends (depending on the company and not guaranteed) which can be used in a variety of ways, such as providing paid-up additional life insurance, which increases both the life insurance benefit and policy cash value.

"Buying term is like renting your insurance," says Berlin. "You don't build up any residual value. Whole life is like owning a home - you build up equity."

Berlin cautions against buying term life insurance just because of the premium difference.

"When you're 35 you think that 20 years is a long time, but life doesn't always work out like you think," he says. "People who buy permanent insurance understand the value of what they're providing to their family."

If you decide that a whole life policy is right for you but feel you're currently unable to afford the premiums for the face value you desire, Berlin recommends buying as much whole life as you can afford and filling in the rest of your face amount with term life. Later, you can convert your term life policy to whole life.

For the wealthy with large estates, putting a whole life policy into a trust is a way to pay estate taxes when they die.

A smorgasbord of choices

If the features of whole life insurance [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x] fit the bill for you, there are multiple varieties depending on your needs and your tolerance for financial risk.

• Ordinary whole life insurance: Premiums are level as long as you live and your policy builds cash value. The initial annual cost will be much higher than the same amount of term life insurance, but as you get older that gap closes.
• Limited payment whole life insurance: This policy lets you pay premiums for only a specific period, such as 20 years or until age 65, but insures you for your whole life. Thus, premium payments will be higher than if payments were spread out through your lifetime.
• Single premium whole life insurance: This policy is paid up after one substantial initial payment.
• Universal life (UL) insurance: This policy lets you vary your premium payments and adjust your death benefit as beneficiaries' needs change. You have to be aware of how much is in your account and whether you need to make payments in order to keep the policy in force. There are also UL policies that can provide level premiums, as well as UL policies with a planned premium option and guaranteed death benefit for life. These policies may offer lower premiums in exchange for a slow accumulation of cash value, if any.
• Variable universal life (VUL) insurance: Here your cash value and death benefit are tied to a particular investment account. Your cash value and death benefit increase if the underlying investments do well, or they may shrink considerably under poor investment performance. Read the prospectus for VUL carefully and never buy a policy that you don't understand. There may be an extra premium required to guarantee a death benefit amount.
• Survivorship life insurance, also called second-to-die life insurance: This type of whole life policy insures two lives as once (typically a husband and wife) and pays out upon the death of the second individual. This is good for people who need to provide for beneficiaries only after both have passed away. It is also less expensive than insuring two lives under separate policies.
• Participating or non-participating whole life insurance: Any type of whole life policy listed above could be "participating" or "non-participating." You have a participating policy if your life insurance company pays dividends to policyholders when it has a good financial year. Dividends are not guaranteed and they will vary year to year when they are paid, but if you have a participating policy you can take your dividends as cash, use them to pay your premiums or use them to purchase additional insurance to increase your policy's face value. Dividends are not taxable as long as they don't exceed the premiums you've paid in.

The life insurance illustration

If you're considering a policy in which premiums and death benefits fluctuate depending on investments or interest rates, you should receive a life insurance illustration from your agent. This is a picture of what could happen with your policy. Or again, maybe not.

The illustration should show you what the insurance company will guarantee (such as any guaranteed interest rates or death benefits) and what will be left open to market conditions. You'll be asked to sign a form stating you understand that some parts of the illustration are not guaranteed.

Being paid up

One happy stage of whole life insurance is when the policy's dividend values and anticipated future dividends are sufficient to cover your future premiums and you no longer need to make premium payments out of pocket. This is called a Premium Offset Proposal, or "POP" arrangement. "POP" means that your cash value is now large enough that it can be used by the insurer to pay your premiums for the rest of your life. You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support.

You could also choose a "limited pay" policy, for which your premiums are calculated for a set number of years or a certain age, like 65.

New York Life has introduced "New York Life Custom Whole Life", a life insurance policy that lets you choose your own guaranteed paid-up date. (You must pay premiums for at least five years and cannot pay premiums past age 75 for this policy.) So, say you want to retire in 12 years and you want your policy to be guaranteed paid-up at that time. New York Life will calculate the premium necessary to have your policy fully paid-up in 12 years so that you won't have to worry about paying life insurance premiums during your retirement. If your need for the full life insurance benefit is reduced during your retirement, you can also begin withdrawing or borrowing from your cash value to supplement your retirement income.

Planning for all situations

Life insurance companies offer a number of riders that can be tacked on to whole life policies. (All riders may not be offered by all companies, and many insurers offer other specialized riders not listed here, so check with your agent.)

• Accidental death benefit rider: Pays an additional benefit if you die in an accident.
• Disability income rider: Provides regular income from the insurance company if you become totally and permanently disabled.
• Level terms rider: Adds a fixed amount of term insurance to the whole life policy for a specified period.
• Living benefits rider, also known as accelerated death benefit: Pays an portion of your death benefit during your lifetime if you are diagnosed with a terminal illness and have a specificed life expectancy (such as 12 months). You can add this rider after buying the policy.
• Long term care (LTC) rider: Pays for LTC expenses if you meet certain criteria.
• Policy purchase option: Gives you the contractual right to purchase additional insurance without evidence of insurability. For example, you may need additional life insurance after the birth of a child.
• Waiver of premium rider: Waives premiums if you become disabled or unemployed. (Terms vary by insurer.)

Watch out for:

• The hard sell: An unscrupulous insurance agent may push whole life insurance when term insurance is sufficient for your needs; the whole life insurance sale could provide him a larger commission.
• Churning: If your agent suggests your current policy needs to be replaced, be wary. "Churning" is when an agent convinces you to surrender an old policy and buy a new one because he makes a new commission off you.
• You thought you were paid up: You may have signed papers allowing your cash value to be used to buy another policy.
• Term vs. perm: A comparison service

You've probably heard the advice "buy term and invest the difference." And to make that work you must have the financial discipline to actually invest that difference every year. And if you did, how much would you come out ahead, or would you?

The Consumer Federation of America (CFA) offers a Rate of Return (ROR) service that provides you with a report comparing the estimated "real" investment returns on a cash value policy versus a term policy with the premium difference invested in a savings vehicle. The service is manned by James Hunt of the CFA, a life insurance actuary and a former insurance commissioner of Vermont.

An analysis can be run for policies you're considering or already own. The cost is $70 for the first illustration and $50 for each additional illustration submitted at the same time. The cost for variable life policies you've already bought (unless within the free look period) and for survivorship life (also called second-to-die) is $80/$50.

Maximizing your cash value policy

Hunt, who has analyzed life insurance policies for almost 25 years, says that because of the high fees associated with whole life, you want to look for ways to maximize your premium dollar within the policy. He suggests these strategies:

• Decline all riders (except term riders on your own life and waiver of premium disability riders) because they'll eat into your cash value potential.
• When you look at the illustration, make sure your first year's cash surrender value is a significant portion of your first year's premium outlay. (A good number would be 50 percent or higher.)
• Consider buying direct rather than through a fully commissioned agent. Examples of direct sellers are Ameritus and TIAA. Returns on these "low-load" policies are generally higher than returns on comparable policies purchased through agents.

If you are looking at cash value life insurance to possibly supplement retirement income, Hunt advises that you may be better off by buying term life and maximizing other tax-advantaged retirement plans first, such as your 401(k), 403(b), IRA or Roth IRA.

Wanting out

Perhaps you committed to a whole life policy many years ago and no longer want or need it. If you simply stop paying the premiums, this will "lapse" your policy and you'll have to chalk it up to an expensive mistake. If you have held the policy long enough to build up cash value, your insurance company will start using the cash value to cover premiums until the cash value runs out.

Instead of lapsing your policy, inform your insurance company that you want to surrender the policy. You'll then receive the current cash surrender value, minus any loans against cash value you took out and unpaid premiums. You may also be hit with a surrender charge for getting out of a UL or VUL policy. Surrender charges can amount to 100 percent (or more) of the first year's premium and usually start to grade off over 10 to 15 years, according to Hunt. With some policies it may take 20 years before surrender charges disappear.

Or, if you have enough cash value, you can ask the insurer to consider the policy "paid up" at a lower death benefit.

Lapse and surrender rates for life insurance show that indeed there are many folks who end up with buyers' regret. Statistics from LIMRA International, a financial services industry research group, show that by policy year five, 69 percent of whole life policies are still in force; that drops to 50 percent in year 13 and 39.6 percent in year 20.

No matter your reasons for considering whole life insurance, rule No. 1 is to never buy a policy you don't understand.

Diabetic Life Insurance Information - Underwriting Life Insurance For Diabetics

Life Insurance Companies differ in their "underwriting philosophy" when it comes to diabetes. Offering life insurance for diabetics can be risky if the underwriters are not fully trained. Underwriters at the insurance companies that are fluent in underwriting diabetes have the ability to look at all of these factors and determine if the company will accept them as a risk. Moderately controlled diabetes cases would usually merit a "rating" or an increase in the premium, but not necessarily a declination for coverage. If the client with diabetes that is looking for life insurance is not controlled, then there are options - it will just cost them more for coverage!

Diabetic Life Insurance can be obtained no matter how severe the diabetes condition is. If the proposed insured has well controlled diabetes and a history of compliance with what the Doctor recommends, then the rate for insurance will naturally reflect that. The better the control, the better the rate. Clients with well controlled diabetes have a great chance at getting a lower rate from a regular insurance carrier and would qualify for a policy that is fully underwritten. If, at the other extreme, the client has very poor control over the diabetes, the rate will be higher and the client will have to go with a life insurance plan that guarantees acceptance. This type of life insurance is called "guaranteed issue life insurance".

Guaranteed issue life insurance for diabetics is more expensive than regular (fully underwritten) life insurance and is only sold as "whole life insurance". This type of insurance can be advantageous, though, because it builds cash value and is intended to cover the client for their "whole life" as opposed to a "term" period of time. Another provision of guaranteed issue is that the premiums paid into the policy would be paid to the beneficiary PLUS 10% interest if the insured dies within the first 3 years of the policy's inception. After that 3 year period of time, the guaranteed issue policy would pay the full death benefit to the beneficiary.

Fully Underwritten policies take the client's full medical records into account. The doctor's records are ordered, blood is drawn, a urine sample is taken, and a full screening is done to evaluate the client. If the insurance company decides to insure this applicant, it is after the company's underwriters look at the case. If the client is fully underwritten and passes through underwriting, then they would have more options than just whole life insurance (in the case of those who are in need of guaranteed issue whole life insurance). Term insurance, Universal Life Insurance, Survivorship Universal Life Insurance, and regular Whole Life Insurance would be available to these applicants that are fully underwritten.

When evaluating a client with diabetes, the underwriters at the insurance company take into account whether the client is a type one diabetic (type I diabetic, type 1 diabetic, type 1 diabetes, type I diabetes) or a type two diabetic (type II diabetic, type 2 diabetic, type 2 diabetes, type II diabetes). Another thing that the underwriters look at is whether the client is a juvenile onset diabetic or an adult onset diabetic. And yet Another determining factor is the Hemoglobin A1C level (this is a more comprehensive test, showing the blood sugar levels over about a 3 month period of time as opposed to a quick "snapshot" blood level test).

If the client's A1C level is below 8, then fully underwritten life insurance may be available subject to the client's full medical file. If the client's A1C level is above 8, then guaranteed issue life insurance is a more realistic goal.

One of the things that applicants fear in the case of insulin dependent type 1 diabetics is whether or not their insulin pump will prevent them from getting a life insurance policy. An insulin pump is actually a positive factor where life insurance underwriting is concerned because the client's insulin level is kept at a constant level.

How often the client monitors their sugar or glucose levels in their blood is another factor. If the client habitually monitors their glucose level, then this is seen as evidence of compliance on the part of the client. If, on the other hand, the client does not monitor these sugar levels, then this could be seen as a negative in the eyes of the insurers and underwriters.

Have there been any low sugar episodes? Have there been any high sugar episodes? Is the client taking glucovance, glucophage, insulin injection, or other type of medicinal treatment? Is the client controlling the diabetes with "diet and exercise"? These are all questions that will be asked during the underwriting process (unless you opt for guaranteed issue).

By the way...ANYONE can get guaranteed issue; you don't have to be "uninsurable". Guaranteed issue is available for clients between the ages of 46 and 80 and up to $35,000 in coverage. Again, this is the more expensive type of life insurance and it is advisable that if you CAN make it through an underwriting evaluation, you should try unless you just want to pay more and be done with it!

So what kind of companies will accept clients with diabetes? Personally, I broker only with "A" rated companies that have the right combination of price, customer service, product variety, and recognition in the market. I deal with companies that take clients on a case by case basis as opposed to categorizing them "by the book". I have fully researched the market, I am in touch with the underwriters personally, and I assure you that these companies have the proper credentials to back up their policies. My clients are provided with full company backgrounds and financial profiles. I deal with several companies that are in the market to insure diabetics. The reason why I am withholding exactly what companies I deal with is because I want to earn your business and represent you as your life insurance agent. Contact Me for a free consultation!

Options You Have Regarding Life Insurance

Life insurance in the UK is becoming more and more popular with many people now realizing the importance and the benefits of a good life insurance policy. There are two main types of popular life insurance, both of which offer a range of invaluable benefits to UK consumers.

Level Term Life Insurance

Level term life insurance is the most popular type of life insurance policy with UK consumers, and this may be because it is also the cheapest form of insurance. With level term insurance, you and your family can enjoy peace of mind at an affordable price. If you die during the term of this insurance policy, your family will receive a lump sum payment, which can help to cover a number of costs as well as provide some degree of financial security at what will inevitably be a difficult time. The money could assist with costs such as:

• Mortgage repayments
• Funeral costs
• Education costs for the children
• Day-to-day living

One of the reasons that level term life insurance is a fair bit cheaper than other life insurance is because the insurer only has to make a payment if the insured party passes away, and even then the insured party has to die during the term of the policy for the next of kin (or the named beneficiary) to be eligible for a payout. One of the great things about levels term insurance is that you can benefit from cover for just a few pounds each week, and because the payments remain the same throughout the term of the policy, you'll never have to worry about rising payments.

The reason why a level term insurance policy is so called is because the repayment remain level throughout the term of the policy, so you will never have to worry about the cost of your policy rising. The policy is also taken over a fixed term, which is where the 'term' part of the policy comes in. This means that you can enjoy easy budgeting and low cost repayments, and you'll know exactly how long you will be making payment for. On the downside, once the policy expires you will not be able to reclaim any money and the policy will be cancelled, so you will then need to look at taking out alternative life insurance cover.

The average term of a level term life insurance policy - unless otherwise specified - is fifteen years. There are a variety of factors that contribute to the cost of the policy such as whether you go for the most basic package or whether you include a bolt-on such as critical illness cover, whether you are a smoker, your general health, and the term over which you take the policy out.

Whole Life Insurance

Unlike level term life insurance, whole life cover offers a guaranteed payout, which to many people makes it better value for money in the long run. Although the repayments on this type of cover are more expensive than level term insurance, the insurer will make pay out whenever the insured party passes away, so the higher monthly payments will guarantee a payout at some point.

There are a number of different types of whole life insurance policies, and consumers can select the one that best fits their needs and their budget. As with other insurance policies, you can tailor-make your whole life insurance cover to include additional cover such as critical illness insurance. The variations on whole life insurance cover include:

Non-profit UK whole life insurance policies: This is the simplest form of whole life cover, and enables you to enjoy the convenience of level payments through the term of the policy until you die. Upon death, your family received a payout and the policy becomes null and void. If you want to pay a little extra, you can take out a policy that is fixed over a specified term, which means that you will only be making payments for a certain amount of time, but your family will still receive a payout when you die.

With-profit UK whole life insurance: This is a cover and investment type scheme, where your monthly payments are split between your cover premiums and the investment side of your policy. You will enjoy a guaranteed assured sum, and you may find that your insurer adds discretionary bonuses.

Low cost UK whole life insurance: One of the cheapest forms of whole life cover, this type of policy features a decreasing term plan, and the policy is combined with a profits fund. As bonuses are added to the profit side of the policy, the policy term decreases. This provides a cost effective solution for those that want to enjoy the benefits of whole life insurance cover without having to make high monthly payments.

Unitised UK whole life insurance policy: When you purchase this type of whole life cover, you will also be investing in with-profit units. This means that when the insurer makes a payout, the sum awarded will be dependent upon the value of the units in comparison to the value of the death benefit (the payout will be based upon whichever is the highest in value). Each month units are cancelled in order to increase levels of death benefit cover, with reviews carried out from time to time to ensure adequate levels of death benefit cover.

Summary

Both level term insurance policies and whole life policies offer valuable peace of mind to policyholders. The cost of this type of life cover is a small price to pay for the peace of mind that comes with being protected, and you can increase this peace of mind by adding extras such as critical illness to your policy for just a small extra fee.

As a nation, we like to insure just about everything we can. .our cars, our homes, our belongings, our pets, and even our credit repayments. It therefore makes sense that we should insure the most important thing of all - our lives.

Learn Basic Life Insurance Before the Step

If you're shopping around for life insurance, you start with two big questions: How much insurance do I need? And what type of policy should I buy?

When you've calculated your short- and long-term obligations, it's time to decide what type of policy is right for you: term life or whole life insurance.

Term life insurance provides coverage for a specified period of time, such as 10, 15 or 20 years; premiums go up over time unless you buy a "level term" policy, which guarantees that premiums stay the same. It's possible that you could outlive the term of your policy, in which case your policy expires and you'd have to shop for another policy if you wish to still have coverage.

With a whole life policy (also called permanent insurance), you don't have to worry about possibly outliving your policy term because your contract gives you coverage for your entire life, as long as the premiums are paid. With a whole life policy, unlike term life, you also build up "cash value" in the policy that you can tap in the future.

Premiums are significantly higher for permanent insurance than term life due to charges and fees (see sidebar) that you don't pay with term life.

Cash value is a crucial selling point for whole life: It's an account within your policy that builds up over time, tax-deferred, fueled by a portion of your premiums and interest paid by the insurance company. In fact, the whole life contract is designed for you to take advantage of that money in the future. When you die, your beneficiaries receive the death benefit, not the cash value, with the exception of some universal life policies.

Whole life insurance policies build up cash value slowly at first but then pick up the pace after several years, when your earnings start to grow faster than your "mortality" cost (the cost of insuring you). If you would like whole life insurance explained in more detail, your life insurance agent should be able to show you a few types of policy illustrations.

Whole life could be an attractive option for any of these reasons:

• Others are relying on you for long-term financial support.
• You're worried about outliving a term life policy and being unable to buy further insurance due to age or deteriorating health.
• You want to build up cash value in addition to protecting your beneficiaries.
• You want to create an estate for your beneficiaries after your death.
• Your beneficiaries need the benefit to pay estate taxes on other assets.

"Whole life insurance is suited for anybody who loves somebody," says Scott Berlin, senior vice president in charge of the Individual Life Department at New York Life Insurance Co. "Whole life does two things for you: protects your family and allows you to save for the future."

Berlin says whole life's advantages are that you don't have to worry about outliving your policy (as is possible with term life) and there is the "forced savings" component of the cash value account, which grows tax-deferred. Once your cash value is built up, you can access it for anything - retirement, your child's college tuition or the vacation you've always wanted. Whole life policies are also eligible to earn dividends (depending on the company and not guaranteed) which can be used in a variety of ways, such as providing paid-up additional life insurance, which increases both the life insurance benefit and policy cash value.

"Buying term is like renting your insurance," says Berlin. "You don't build up any residual value. Whole life is like owning a home - you build up equity."

Berlin cautions against buying term life insurance just because of the premium difference.

"When you're 35 you think that 20 years is a long time, but life doesn't always work out like you think," he says. "People who buy permanent insurance understand the value of what they're providing to their family."

If you decide that a whole life policy is right for you but feel you're currently unable to afford the premiums for the face value you desire, Berlin recommends buying as much whole life as you can afford and filling in the rest of your face amount with term life. Later, you can convert your term life policy to whole life.

For the wealthy with large estates, putting a whole life policy into a trust is a way to pay estate taxes when they die.

A smorgasbord of choices

If the features of whole life insurance fit the bill for you, there are multiple varieties depending on your needs and your tolerance for financial risk.

• Ordinary whole life insurance: Premiums are level as long as you live and your policy builds cash value. The initial annual cost will be much higher than the same amount of term life insurance, but as you get older that gap closes.
• Limited payment whole life insurance: This policy lets you pay premiums for only a specific period, such as 20 years or until age 65, but insures you for your whole life. Thus, premium payments will be higher than if payments were spread out through your lifetime.
• Single premium whole life insurance: This policy is paid up after one substantial initial payment.
• Universal life (UL) insurance: This policy lets you vary your premium payments and adjust your death benefit as beneficiaries' needs change. You have to be aware of how much is in your account and whether you need to make payments in order to keep the policy in force. There are also UL policies that can provide level premiums, as well as UL policies with a planned premium option and guaranteed death benefit for life. These policies may offer lower premiums in exchange for a slow accumulation of cash value, if any.
• Variable universal life (VUL) insurance: Here your cash value and death benefit are tied to a particular investment account. Your cash value and death benefit increase if the underlying investments do well, or they may shrink considerably under poor investment performance. Read the prospectus for VUL carefully and never buy a policy that you don't understand. There may be an extra premium required to guarantee a death benefit amount.
• Survivorship life insurance, also called second-to-die life insurance: This type of whole life policy insures two lives as once (typically a husband and wife) and pays out upon the death of the second individual. This is good for people who need to provide for beneficiaries only after both have passed away. It is also less expensive than insuring two lives under separate policies.
• Participating or non-participating whole life insurance: Any type of whole life policy listed above could be "participating" or "non-participating." You have a participating policy if your life insurance company pays dividends to policyholders when it has a good financial year. Dividends are not guaranteed and they will vary year to year when they are paid, but if you have a participating policy you can take your dividends as cash, use them to pay your premiums or use them to purchase additional insurance to increase your policy's face value. Dividends are not taxable as long as they don't exceed the premiums you've paid in.

The life insurance illustration

If you're considering a policy in which premiums and death benefits fluctuate depending on investments or interest rates, you should receive a life insurance illustration from your agent. This is a picture of what could happen with your policy. Or again, maybe not.

The illustration should show you what the insurance company will guarantee (such as any guaranteed interest rates or death benefits) and what will be left open to market conditions. You'll be asked to sign a form stating you understand that some parts of the illustration are not guaranteed.

Being paid up

One happy stage of whole life insurance is when the policy's dividend values and anticipated future dividends are sufficient to cover your future premiums and you no longer need to make premium payments out of pocket. This is called a Premium Offset Proposal, or "POP" arrangement. "POP" means that your cash value is now large enough that it can be used by the insurer to pay your premiums for the rest of your life. You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support.

You could also choose a "limited pay" policy, for which your premiums are calculated for a set number of years or a certain age, like 65.

New York Life has introduced "New York Life Custom Whole Life", a life insurance policy that lets you choose your own guaranteed paid-up date. (You must pay premiums for at least five years and cannot pay premiums past age 75 for this policy.) So, say you want to retire in 12 years and you want your policy to be guaranteed paid-up at that time. New York Life will calculate the premium necessary to have your policy fully paid-up in 12 years so that you won't have to worry about paying life insurance premiums during your retirement. If your need for the full life insurance benefit is reduced during your retirement, you can also begin withdrawing or borrowing from your cash value to supplement your retirement income.

Planning for all situations

Life insurance companies offer a number of riders that can be tacked on to whole life policies. (All riders may not be offered by all companies, and many insurers offer other specialized riders not listed here, so check with your agent.)

• Accidental death benefit rider: Pays an additional benefit if you die in an accident.
• Disability income rider: Provides regular income from the insurance company if you become totally and permanently disabled.
• Level terms rider: Adds a fixed amount of term insurance to the whole life policy for a specified period.
• Living benefits rider, also known as accelerated death benefit: Pays an portion of your death benefit during your lifetime if you are diagnosed with a terminal illness and have a specificed life expectancy (such as 12 months). You can add this rider after buying the policy.
• Long term care (LTC) rider: Pays for LTC expenses if you meet certain criteria.
• Policy purchase option: Gives you the contractual right to purchase additional insurance without evidence of insurability. For example, you may need additional life insurance after the birth of a child.
• Waiver of premium rider: Waives premiums if you become disabled or unemployed. (Terms vary by insurer.)

Watch out for:

• The hard sell: An unscrupulous insurance agent may push whole life insurance when term insurance is sufficient for your needs; the whole life insurance sale could provide him a larger commission.
• Churning: If your agent suggests your current policy needs to be replaced, be wary. "Churning" is when an agent convinces you to surrender an old policy and buy a new one because he makes a new commission off you.
• You thought you were paid up: You may have signed papers allowing your cash value to be used to buy another policy.
• Term vs. perm: A comparison service

You've probably heard the advice "buy term and invest the difference." And to make that work you must have the financial discipline to actually invest that difference every year. And if you did, how much would you come out ahead, or would you?

The Consumer Federation of America (CFA) offers a Rate of Return (ROR) service that provides you with a report comparing the estimated "real" investment returns on a cash value policy versus a term policy with the premium difference invested in a savings vehicle. The service is manned by James Hunt of the CFA, a life insurance actuary and a former insurance commissioner of Vermont.

An analysis can be run for policies you're considering or already own. The cost is $70 for the first illustration and $50 for each additional illustration submitted at the same time. The cost for variable life policies you've already bought (unless within the free look period) and for survivorship life (also called second-to-die) is $80/$50.

Maximizing your cash value policy

Hunt, who has analyzed life insurance policies for almost 25 years, says that because of the high fees associated with whole life, you want to look for ways to maximize your premium dollar within the policy. He suggests these strategies:

• Decline all riders (except term riders on your own life and waiver of premium disability riders) because they'll eat into your cash value potential.
• When you look at the illustration, make sure your first year's cash surrender value is a significant portion of your first year's premium outlay. (A good number would be 50 percent or higher.)
• Consider buying direct rather than through a fully commissioned agent. Examples of direct sellers are Ameritus and TIAA. Returns on these "low-load" policies are generally higher than returns on comparable policies purchased through agents.

If you are looking at cash value life insurance to possibly supplement retirement income, Hunt advises that you may be better off by buying term life and maximizing other tax-advantaged retirement plans first, such as your 401(k), 403(b), IRA or Roth IRA.

Wanting out

Perhaps you committed to a whole life policy many years ago and no longer want or need it. If you simply stop paying the premiums, this will "lapse" your policy and you'll have to chalk it up to an expensive mistake. If you have held the policy long enough to build up cash value, your insurance company will start using the cash value to cover premiums until the cash value runs out.

Instead of lapsing your policy, inform your insurance company that you want to surrender the policy. You'll then receive the current cash surrender value, minus any loans against cash value you took out and unpaid premiums. You may also be hit with a surrender charge for getting out of a UL or VUL policy. Surrender charges can amount to 100 percent (or more) of the first year's premium and usually start to grade off over 10 to 15 years, according to Hunt. With some policies it may take 20 years before surrender charges disappear.

Or, if you have enough cash value, you can ask the insurer to consider the policy "paid up" at a lower death benefit.

Lapse and surrender rates for life insurance show that indeed there are many folks who end up with buyers' regret. Statistics from LIMRA International, a financial services industry research group, show that by policy year five, 69 percent of whole life policies are still in force; that drops to 50 percent in year 13 and 39.6 percent in year 20.

No matter your reasons for considering whole life insurance, rule No. 1 is to never buy a policy you don't understand.

Amy Danise is a staff writer for Insure.com. Visit Insure.com for a comprehensive array of comparative auto, life and health quotes, including a vast library of originally authored insurance articles and decision-making tools that are not available from any other single source. Insure.com is dedicated to providing impartial insurance information to consumers. Visitors can obtain instant quotes from more than 200 leading insurers, achieve maximum savings and have the freedom to buy from any company shown.

Basic Know How about Life Insurance

Many of us buy life insurance because we want to make sure that our loved ones, especially dependents, remain financially secure after we die. Income replacement is the No. 1 reason people buy life insurance.

Non-earning caregivers also have an important - and often overlooked - economic value that should be covered by life insurance.

Life insurance is also purchased by those interested in achieving specific business or estate-transfer goals.

There are many types of life insurance policies depending on your goals, and there are huge price differences among different companies offering identical coverage. Policies are available from hundreds of life insurance companies in the United States. Most financial planners recommend that each family income provider carry no less than 10 times their annual income in life insurance.

Here's an orderly way to go about shopping for life insurance:

• 1) Assess your needed life insurance amount..
• 2) Decide on the most appropriate policy type for your goals.
• 3) Choose possible companies by setting high standards for financial stability ratings.
• 4) Shop until you find the best price.
• 5) Look at ways to get the best possible life insurance rate.

Life insurance is a long-term proposition, so you should pay particular attention, at time of purchase and throughout the life of the policy, to the financial stability ratings of your life insurance company. Ratings indicate a company's ability to pay claims.

Assessing your life insurance needs

The first step in life insurance planning is to analyze your life insurance needs - meaning the economic needs of dependents left behind. A great way to determine your coverage needs is to use an online calculator like Insure.com's Life Insurance Needs Estimator Tool.

• Before purchasing a life insurance policy, consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your final medical bills and funeral costs? Would your family have to relocate or otherwise change their standard of living after losing your income? The assumption of immediate death is necessary to determine the current life insurance needs for a family or individual.

• Add in the longer term financial needs of the remaining family members, such as: children's expenses, income for the surviving spouse, mortgage and other debt payoffs, college education funds and an additional emergency fund.

Because life insurance needs change over time, your life insurance amount should be reevaluated periodically. We recommend a review at least once every five years or whenever you experience a major life event such as a change in income or assets, marriage, divorce, the birth or adoption of a child, or a major purchase such as a house or business.

In theory, you should have a declining need for life insurance as you age because fewer people remain dependent upon you for income support. Exceptions would be protecting a business entity or paying taxes on a large estate for heirs. If the purpose of buying life insurance is to pay estate taxes, then you'll need permanent life insurance, which is in-force as long as you live and pay premiums.

Policy choices

Life insurance policies are divided into two main types:

• Term life insurance, which provides only death protection without any side funds or "cash values" (offering the least expensive cost per $1,000 of death coverage purchased).
• Permanent life insurance, which has "cash value" accounts in which a return-on-investment component becomes an often complex and expensive part of the policy (most expensive cost per $1,000 of coverage).

Term life insurance

The simplest of all life insurance to understand and the cheapest to buy: Term life insurance provides death benefit protection without any savings, investment or "cash value" components for the term of the coverage period.

Term life insurance is available for set periods of time such as 10, 15, 25 or 30 years. With "annual renewable term life," your policy automatically renews each year and premiums increase as you get older. Choose "level term insurance" if you want your premium to stay the same for the duration of the policy. Also available is "decreasing term insurance," where premiums remain level but your death benefit declines over time. This is good if you want to cover only a specific debt that decreases, such as a mortgage or business loan.

As long as you pay your premiums, the company cannot cancel you.

Term life insurance is a popular choice because of the long rate-guarantee periods and because of the ability to get a low cost life insurance policy. However, if you get to the end of your policy term and still need life insurance, you'll need to shop for a new policy, which will then be priced based on your older age and health status.

Choosing an initial rate-guarantee period is easy: Match the period of time your dependents need your income to the available rate-guarantee periods. For example, if your children are young and you have decades to go on your mortgage, try 30-year term life. If your children are leaving the nest and your home is paid off or nearly paid off, 10-year term might fit the bill.

Other policy provisions that drive the popularity of term life insurance are guaranteed renewal and guaranteed convertibility.

• Guaranteed Renewal. Before you buy a term life policy, ask the agent or company to confirm to you that the policy contains a guaranteed renewable option, which grants you the right to continue coverage beyond the initial rate-guarantee period without a medical exam. This feature, found in most term life policies sold today, is extremely important should you become sick and uninsurable toward the end of your rate-guarantee period.

For example, say that you've been paying $800 per year on a $500,000, 20-year level term life policy and develop cancer near the end of the 20-year period, thus making you uninsurable. Assuming that you want to continue the coverage, a guaranteed renewable clause would allow you to continue the coverage beyond 20 years on an annual renewable basis without an exam, albeit at a much higher annual premium of, say, $8,000 in year 21, $11,000 in year 22, and so on.

You may have sticker shock right now but these premiums don't look so high when you are very sick and uninsurable but still in need of coverage.

• Guaranteed Convertible. Another built-in feature of most term life policies is the right to convert your coverage to any cash value policy that the company might offer at current rates without having to take another physical exam. This feature may be of use in the future if you decide you want cash value life insurance.

If you'd like term insurance to cover you for a certain period of time but you're confident you'll outlive the policy, consider a "return of premium" (ROP) term life insurance policy. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back (tax-free). Return of premium term life insurance generally costs 50 to 150 percent more than a comparable term policy but it provides a way to hedge your bets no matter what happens.

Term life insurance is widely available on the Internet, from direct-to-consumer life insurance companies and from insurance agents and brokers.

Cash value life insurance

If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings account (not insured by any federal agency) or stock market investment, you might consider cash value life insurance such as whole life, universal life or variable life. But be prepared to pay much higher premiums per $1,000 of coverage precisely because you are now funding a cash value account and paying fees and expenses.

In many cash value policies, the annual premium does not increase from year to year. Universal life policies allow you to fluctuate or even skip premium payments, which in turn adjusts your death benefit amounts.

Unlike term life insurance, which is easily compared online, cash value insurance is often marketed by agents and brokers in a face-to-face setting, where needs and strategies can be discussed.

Because of the complexity and dizzying array of possible outcomes for permanent life insurance, regulators insist that cash value insurance be sold using pre-approved illustration formats. These illustrations can run to 15 or more pages. Cash value life insurance illustrations are divided into two major sections: guaranteed values and projected or "illustrated, non-guaranteed" amounts. Illustrations can be complex and hard to compare in an apples-to-apples way.

Pay particular attention to the guaranteed death benefit and premium-payment sections because these columns contain the actual company promises. If you don't like what you see there, walk away.

Another caveat: Many cash value policies contain harsh penalties for surrendering the policies in the early years. Changing your mind within the first few years is an expensive decision.

Whole life insurance

Ordinary whole life insurance offers "permanent protection" with a cash value account that grows over time. Whole life provides a level death benefit and level premiums throughout your life and for as long as you continue to pay the premiums. For example, a healthy 40 year-old female might pay $4,200 per year for a $500,000 whole life policy. The premium remains level at $4,200 per year for the rest of her life and, in the event of death at any age, the policy will pay $500,000 to her beneficiary.

Whole life also contains a cash value account that builds over time, slowly at first and gaining steam after several years. You can withdraw your cash value or take out a loan against it, but remember, if you die before you pay back the loan, the death benefit paid to your beneficiaries will be reduced. For example: Susan has a $500,000 whole life policy in force and, over the years, has borrowed continually from the cash value. Her total loan amount and accrued interest totals $300,000. When Susan dies, her beneficiary will receive $200,000 because the life insurance company will first pay itself back from the death benefit.

Understand what your beneficiaries will receive upon your death. If you have a traditional whole life policy, your beneficiaries receive only the death benefit no matter how much cash value you've built up. Other payout options available for higher premiums are:

• Death benefit plus cash value
• Death benefit plus return of premium

Whole life policies can be issued as "participating" or "nonparticipating." Participating policies typically cost more but may return annual dividends if the insurer has a good financial year. Dividends are never guaranteed. Nonparticipating whole life insurance offers no dividends.

Buyers of whole life insurance like the certainty of fixed premiums with a known death benefit for life. They also appreciate the "forced savings" component and watching their cash value account build up.

Universal life insurance

This kind of policy offers greater flexibility than whole or term life. Universal life has many moving parts to understand before you buy.

After your initial premium payment, you can reduce or increase the amount of your death benefit. Also, after your initial payment, you can pay premiums any time and in any amount, as long as you don't miss a minimum payment level. In some cases, there are limits to how much extra you can pay in advance. If you choose to increase your death benefit, you may have to provide medical proof that your health has not deteriorated.

You will need to manage these policies to maintain sufficient funding, especially because the insurance company can increase charges.

Some new universal life policies perform like term life insurance: They can be configured at the time of purchase to provide both level death benefits and level premiums that are guaranteed for life as long as you pay the scheduled premium.

Variable life insurance

Variable life offers a death benefit with a side fund that operates like an investment account. It shifts the uncertainties of investment gains and losses to the policyholder.

The insurance company invests your premiums and offers you a choice of funds in which your money will be invested. Returns are not guaranteed. The amount of money your beneficiaries will receive and the cash value of your policy depend on how well the underlying accounts perform. Theoretically, the cash value can go down to zero and, if so, the policy will terminate. Some variable life policies will guarantee a minimum death benefit.

Other permanent life insurance considerations

When your cash value account grows large enough, it can be used by the insurer to pay your premiums for the rest of your life. This is known as being "paid up." You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support. Your policy illustration will show you how long it may take for your whole life policy to be "paid up."

If you no longer want your whole life policy, you can surrender it to receive the current cash surrender value or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance protection for a short time.

Riders add benefits

You can add riders to your life insurance policy that guard against a number of unpleasant situations. Your insurer will have its own list of available riders, but here are a few:

• Accelerated death benefit rider (aka living benefits rider): Pays the benefit early if you become terminally ill.
• Accidental death benefit rider: Pays an extra benefit if you die as the result of an accident.
• Long term care rider: Pays for long term care expenses should you not be able to do some of the "activities of daily living," such as dressing or toileting.
• Waiver of premium rider: Waives premium payments should you become totally disabled.

How life insurance is priced

Your life insurance rate is based on your life expectancy, the face amount you request and the length of the policy, whether it's the duration of your life (whole life) or a specific period (term life). Obtaining a low cost life insurance policy depends, in large part, on your current and past health.

Because your current and past health conditions impact your life expectancy, insurers want to know as much as possible about your health condition. Common conditions such as high blood pressure, heart disease, obesity, cancer and depression can all raise your life insurance rate or even result in a declination.

Based on your medical history, you'll be grouped into a category such as "preferred plus," "preferred," "standard" and "substandard." Your category ultimately determines your premiums.

Insurance buyers with severe health conditions or a combination of conditions can find it hard or impossible to find life insurance. They are known as "impaired risks." Local agents may not be experienced enough to find a company that specializes in insuring people with certain medical conditions. Fortunately, impaired-risk specialists have expertise in knowing where to direct applications for folks with medical conditions.

The life insurance buying process

The life insurance applications process is paper-intensive, can take weeks and often seems intrusive for people who value their privacy. A face-to-face paramedical examination is generally required for policies in excess of $100,000, which means, at minimum, giving of both blood and urine samples to the paramedical professional.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history. Do you intend to scuba dive? Have you had parents or siblings with heart disease or cancer before age 60? Have you ever taken any medicine for anxiety or depression? These, and more, are the kinds of questions to expect.

Sometimes multiple interviews are required in order to verify your information. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you can verify the first set of answers. Regardless of the type of life insurance you buy, most policies require you to meet certain guidelines regarding your lifestyle and health history.

If it sounds tempting to shortcut this process by fudging on an answer or withholding information, don't do it. It's a crime in all 50 states to lie about or conceal information on a life insurance application. Besides, policies obtained through fraud can be voided at claim time.

Insurers will likely report your medical exam results (reported as numbered codes) to the Medical Information Bureau (MIB), which maintains a database of those who have applied for life insurance in the last seven years. If you've given different answers to medical questions in the past, it will raise a red flag with the MIB. The goal of the MIB database is to reduce fraud.

All standard life insurance policies generally cover death by any cause at any time in any place, except for death by suicide within the first two policy years (one year in some states).

If you don't care to go through the underwriting process, you have two other, more expensive, options:

• Simplified issue life insurance can be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are healthy, or even if you have some negative medical history, an underwritten policy is still going to be your least expensive.
• Guaranteed issue life insurance is sold to anyone who applies (up to an age limit) and is by far the most expensive way to purchase life insurance. This should be considered only by those who are declined for everything else but still need life insurance. These policies have graded death benefits, meaning your beneficiaries won't receive the full death benefit until several years into the policy.

In naming a beneficiary, keep in mind that the life insurance company will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, absent of a financial relationship, will not do.

Working with an agent

After reviewing the various life insurance policies available, you might still be unsure about which best meets your needs. The American Council of Life Insurers (ACLI) recommends consulting an insurance agent. ACLI spokesman Jack Dolan says an agent can recommend policies that will meet your needs. "Look at the recommended policy with care to be sure it fits your personal goals," Dolan says.

Carefully study your agent's recommendations and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides.

Insure . com offers these recommendations for deciding which type of life insurance to purchase:

If your agent recommends a term life policy, ask:

• What is the Standard & Poor's, A.M. Best, Fitch, Moody's and Weiss ratings of this insurance company?
• What is the initial rate-guarantee period? Is this policy renewable past the initial rate-guarantee period without a physical exam? If so, what are the premiums?
• Is this policy convertible to permanent insurance without a physical exam? If so, for what period of time do I have the right to convert?

If your agent recommends a cash value policy, ask:

• What is the Standard & Poor's, A.M. Best, Fitch, Moody's and Weiss ratings of this insurance company?
• Can you tell me, in writing, why you are recommending cash value insurance for me at this time?
• Why should I combine my life insurance protection needs with my investment objectives?
• Can you please prepare an analysis for me that shows the true cost of this cash value insurance policy over 5, 10, 15, 20, 25 and 30 years vs. buying term life and investing the difference in long term bonds over those same time periods?
• How much is your first-year commission on this proposed cash value policy vs. your commission on an equivalent term life insurance policy?
• Are these proposed annual premiums within my budget?
• Why do you think that I can commit to paying these premiums over the long term, perhaps decades?
• How much will I receive if I surrender the policy?

Additional Resources

• Consumer Federation of America's Insurance "Rate of Return" Service
• Insurance Information Institute: Learn about life insurance
• Your state's department of insurance may also have life insurance buying guides online
• For a free life insurance quote or more information on the types of life insurance available, please visit Insure.com.

Amy Danise is a staff writer for Insure.com. Visit Insure.com for a comprehensive array of comparative auto, life and health quotes, including a vast library of originally authored insurance articles and decision-making tools that are not available from any other single source. Insure.com is dedicated to providing impartial insurance information to consumers. Visitors can obtain instant quotes from more than 200 leading insurers, achieve maximum savings and have the freedom to buy from any company shown.