Life Insurance FAQ Page

THE FALLS INSURANCE CENTER, INC.

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• What do I need to know about Term Life Insurance?
• What do I need to know about Permanent Life Insurance?
• What is Universal Life Insurance?
• What is an endowment?

Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term policies can be renewed when you reach the end of a specific period, which can be from one to twenty years. The premium rates increase at each renewal date. Many policies require that evidence of insurability be furnished at renewal for you to qualify for the lowest available rates. Another popular term policy can provide protection for a mortgage and the coverage will decrease as the principal amount of the mortgage decreases as it is paid but the premium will remain level through out the policy period.

Two basic kinds of Term Life Insurance are:

1. Level Term: The face value of the insurance coverage remains the same over time, but the insurance premiums increase at the end of each term (i.e. a 5-year term policy has to be renewed at a higher premium at the end of every 5 year term). Annual Renewable Term is usually the best dollar value.
2. Reducing (or Declining) Term: The face value of the insurance coverage reduces over time, but the insurance premiums remain the same. Credit Life and Home Mortgage Life Insurance are forms of reducing term.

Two basic Term contract provisions which should be considered:

1. Renewal Options: Can you renew the term policy automatically at the end of each term for another term without a physical examination?
2. Conversion Options: Can you convert your term policy to some kind of Permanent policy without a physical examination? Some policies have a conversion to term option as well as to Cash Value Insurance.

Permanent insurance provides lifelong protection and is known by a variety of names, described later. As long as you pay the necessary premiums, the death benefit always will be there. These policies are designed and priced for you to keep over a long period of time.

This is the most common type of permanent insurance. The premiums for a whole life policy must be paid periodically in the amount indicated in the policy. These premium amounts generally remain constant over the life of the policy.

Most permanent policies - including whole, ordinary and universal life - have a feature know as "cash surrender value." This feature, which is not found in most term insurance policies, provides you with some options.

• You can cancel or "surrender" the policy - in total or in part - and receive the cash value as a lump sum of money. If you surrender your policy in the early years, there may be little or no cash value.
• If you need to stop paying premiums, you can use the cash value to continue your current insurance protection for a specific period of time or to provide a lessor amount of protection to cover you for as long as you live.
• Usually, you may borrow from the insurance company, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit.
• Keep in mind that with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash value is the amount available when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death of at policy maturity.

1. Whole Life (Straight Life, Ordinary): Basically you pay insurance premiums for your whole life (100 years) before your cash value equals your face value.
2. Limited-Pay-Life (e.g. 20-Year-Pay-Life, Paid-up-at-65): You pay higher premiums for a limited period (i.e., Paid-up-at-65) so that you do not have to pay premiums after the stipulated limited period.

This variation of permanent insurance allows you to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the amount of the death benefit more easily than under a traditional whole life policy. (To increase your death benefit, you usually will be required to furnish the insurance company with satisfactory evidence of your continued good health.)

Typically the most expensive kind of permanent life insurance; you pay high premiums for a specific period of time (i.e., 20 year endowment) at the end of which your Cash Value (Savings) equals the face value of the policy and you can take the money in cash.

885 South Holmes Avenue
P. O. Box 1882
Idaho Falls, ID 83403-1882
Phone (208) 523-7100 (800) 853-7102 Fax (208) 529-0168
© Eric Bennion 2005