Why is term life often the least expensive kind of policy?

Term insurance is often very inexpensive when you are young. However, each time your term policy ends, you must opt to renew for another term if you want to keep your coverage — often at a higher premium. As you get older, your chance of dying increases, which means your insurance company will charge you more for coverage. Your rates may also increase if your health status changes. Finally, since term life does not have an investment component, it typically costs less than permanent insurance.

Why is term insurance a good choice for some people?

It is a great choice for those who want coverage at a low price. Some people would rather make their own investments and are self disciplined enough to save money on a regular basis so they prefer to buy life insurance without an investment component.

What is whole life insurance?

With this type of policy, a portion of the premium you pay goes to provide your family with life insurance coverage if you should pass away. The other part goes into a savings or investment fund that builds up in value as long you own the policy.

What are some of the advantages of whole life?

You can have life insurance coverage your entire life provided you continue paying the premiums. Whole life is also a forced savings for those who have difficulty putting money aside. Another feature is that premiums remain level for the life of the policy.

What happens if I can't pay my premiums on my whole life policy?

Since the policy has cash value, you can borrow against the policy to pay your premiums or you may be able to exercise a reduced paid up insurance option.

What is universal life insurance?

Universal life is a form of permanent life coverage offered by many companies. Like most permanent policies, it guarantees a certain rate of return on the savings component within the policy. The rate may go up if the company performs well but it will never go below the guaranteed rate.

How does universal life insurance provide flexibility to policy holders?

You can choose to increase or decrease premiums within the limits of the terms of the policy. You can raise or lower the face value of the policy — also within certain limits. You can borrow money against its cash value or even "cash in" the entire policy. Although cashing in a policy is seldom recommended.

How is variable life insurance different from universal life insurance?

Both are forms of permanent life, but unlike universal, variable life generally does not come with a guaranteed rate of return. However a greater return is possible since the savings portion of the policy is invested into stocks, bonds or other options of your choosing.

Does variable life insurance have tax advantages like universal life insurance?

Yes. The death benefit is tax-free. Taxes on your investments are also deferred as long as the funds remain in the account. You can move money from one investment to another without incurring taxes on your gains.

How can life insurance help with estate planning?

Permanent life policies can be part of your overall estate planning in that their savings components build up cash value over the years and offer deferred tax savings. Death benefits to your beneficiaries are also tax-free. Couples with large estates often purchase "second-to-die" life policies in which no death benefits are paid until after both people have died. Such death benefits are often used to pay estate taxes.