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                                                                      For the Future of Your Loved Ones.


The Main Types of Life Insurance

Life insurance can generally be classified as either "term life," "cash value life," or a combination of the two. Term life coverage is typically less expensive and less complex. These policies pay only once - with a specified death benefit when the insured dies - and only if the person dies during the specified term that the coverage is in force. Cash value life policies typically provide a variety of features and benefits in addition to the death benefit, and they typically cost more. However, the key feature of all cash value life insurance is a savings component that accumulates over time and may be withdrawn, invested, or borrowed against during the policyholderýs lifetime, depending on the policy terms.

In addition to a basic life insurance policy form, your agent or company will likely offer a choice of several "riders," or special policy add-ons, that extend, limit, or modify the coverage in some way. Riders that increase coverage typically increase the premium.

Term life insurance

Term life policies take their name because coverage only lasts for a specific period of times; such as one, five, 15, or 20 years - or until the insured reaches a certain age. The cost of term life generally increases as you get older. For people under age 40, term life generally provides the largest death benefit per premium dollar of any type of life insurance.

Term life policies typically donýt include a savings component. If you die during the term, the insurance company pays the amount of the death benefit specified by the policy. If you donýt die during the term, the policy lapses, no benefit is paid, and you must either renew or purchase another type of coverage if you wish to keep life insurance.

Term life can be a good choice for young families with children.You may only need coverage until the children are old enough and financially able to provide for themselves.

Common features of most term life policies include:

• Convertibility. You can exchange the policy for permanent life insurance of equal value without taking a medical exam or any further underwriting. For example, you could transfer a $100,000 convertible term policy into a $100,000 cash value policy without having to answer questions about your health or medical history. Your premium will probably increase, however, because cash value coverage typically costs more than term life. Convertibility can be an important feature if your health declines and you become unable to qualify for a permanent policy through a separate application. Converting to a cash value policy can also allow you to begin using your policy to build savings. Insurers typically only allow policyholders to convert term life policies before age 65.
  
• Renewability. You can extend the policy for additional terms, regardless of your health and without having to pass a medical exam. This can be another advantage of term life coverage as you age or if you become ill.Even if you no longer meet an insurerýs underwriting criteria, the company still must renew. Terms can renew at 20, 10, or five years, or even annually. Premiums generally increase at each renewal term. Annually renewable premiums can be extremely high for policyholders past middle age. If you are paying high annually renewable premiums, you may want to convert to some other type of coverage.

Term life insurance typically comes in one of three common policy variations:

1. Level term coverage pays a death benefit that remains constant over the term. For example, a 20-year level term policy with a $100,000 death benefit will always pay that amount, whether the insured dies in year five or year 15. Depending on the policy, your premium for level term coverage will either remain constant or increase at a scheduled rate.
2. Decreasing term coverage pays a death benefit that decreases over the term at a scheduled rate. For example, a 20-year decreasing term policy may begin with a $100,000 death benefit that decreases by $5,000 per year. If you die in the 11th year, the policy pays $50,000. Decreasing term coverage can be a good option to provide for children in the event of a parentýs early death since the need for coverage typically decreases as they near the age they can provide for themselves. A disadvantage of decreasing term coverage is that its convertibility value also decreases each year. Premiums typically remain constant over the term.
3. Increasing term coverage pays a death benefit that increases over the term at a scheduled rate, which is often pegged to inflation. For example, a 20-year increasing term policy may begin with a $100,000 death benefit that increases by 5 percent of the face value per year. If you die in the 12th year, the policy would pay about $155,000. Premiums typically increase each year for increasing term policies in line with the benefit increase.

Cash value life insurance

Cash value life policies provide both a death benefit and a way to accumulate funds over time. However, the primary purpose of cash value coverage is to provide permanent life insurance protection, not to serve as a retirement or savings plan.

Initial premiums for cash value insurance are typically higher than for term life insurance because youýre also purchasing the savings feature. However, cash value premiums generally increase at a slower rate. If you buy a cash value policy at a young age and continue the policy into middle age, your premium will likely be lower than they would for a term life policy with a comparable death benefit.

A portion of each cash value premium is placed into an account that accumulates over time.This is the policy's "cash value." The amount may grow at a fixed interest rate, be tied to indexed interest rates, or increase according to the performance of stocks, bonds, or other securities in which the account is invested, depending on the policy type.

A policy may allow you to withdraw from the cash value, use it as collateral for a loan, or use it to make future premium payments, depending on the terms. Withdrawing all of the cash value cancels the policy and ends coverage, however.

When you die, beneficiaries may receive only the policy's stated death benefit or the benefit plus any remaining cash value, depending on the policy terms. Premiums will be higher for the second option.

It typically takes at least three to five years for a policy to build significant cash value. Moreover, if you withdraw some or all of the money before a specified time period, you will likely incur a substantial "surrender charge," which can be as high as 10 percent or more. You may also be liable for income taxes on the money. If you purchase a cash value policy, try to keep it for at least 15 to 20 years. About half of the people who purchase these policies cash them in within five years, which is often a financial mistake.

Cash value life insurance can be a good option for people with financial discipline.

The two most common variations of cash value insurance are:

1. Whole life insurance. Whole life insurance remains in force for the duration of the insured's lifetime or until the policy is cashed in, provided that the premium is paid. You never have to renew. Premiums either remain constant or increase at a scheduled rate. Part of each premium goes to pay for the death benefit, part to pay the insurerýs overhead costs and profit, and part to grow the cash value.

   Some whole life policies are "participating," meaning they may also pay a dividend depending on the performance of the cash value investment account. Typically you will have the choice of receiving the dividend in cash, adding it to your policy's cash value to purchase additional death benefits, or using it to pay future premiums.

   Dividends are not guaranteed. Some policies fail to pay dividends at the insurer's projected rate, while others may exceed the projection. Your agent may present you with a detailed chart called an "illustration" that shows a policy's projected earnings. Ask for the company's history of dividends projected versus dividends actually paid. The agent should not object.

2. Flexible premium universal life insurance. The key feature to this type of policy is flexibility.Within certain limits, a flexible premium universal policy will allow you to choose the amount of coverage, the premium you pay, and the cash value you build. As long as the premiums continue to be paid, the policy will remain in force until the "maturity date," at which point coverage ends and the cash value is paid to the policyholder. Some flexible premium policies pay a guaranteed rate of return. Others are "variable universal life" policies whose value depends on the performance of stocks, bonds or other investments. For this reason, agents and brokers who sell variable life insurance in Texas are required to maintain a federal securities license in addition to the standard state insurance license. The precise rules and policy terms for flexible premium policies can be complex. It is important that you fully understand all of the policy details, so it is a good idea to consult a financial or estate planning adviser before purchase.

   A flexible premium policy will allow you to adjust the amount you pay in premium, the death benefit, or the cash value at any time. Any adjustment you make, however, will impact one or both of the other areas: Increasing your premium will build either your cash value, death benefit, or both. Likewise, lowering either your cash value or death benefit will decrease your premium. Many flexible premium policies will even provide the option of lowering your premium payments below the amount needed to pay the insurer's overhead expenses. The company will then deduct that amount from your cash value. But be careful with this option.If the cash value reaches zero, you will have to resume paying the full amount of the premium out of pocket or the policy will lapse. The contract will state that the insurer is required to send you an annual report of the state of your cash value and also notify you if at any point you are in danger of losing your policy because of insufficient cash value.

   Most flexible premium policies contain a provision for a "Secondary Guarantee," or a no-lapse premium benefit.A "Primary Guarantee" is the payment of the premium necessary to cover the monthly deduction.If the Primary Guarantee is not satisfied, a Secondary Guarantee may keep the policy from lapsing.The Secondary Guarantee provides a benefit whereby payment of a premium that would not be large enough to pay for the monthly deduction satisfies the no-lapse condition and keeps the policy in force.