How to Understand Short-Term, Cash Value Life Insurance

Short-term and cash value life insurance have different purposes and uses. Short-term life insurance is adopted by many as filler or "gap" insurance and has coverage for a limited period. Cash value life insurance, on the other hand, is coverage for your entire life. Here are some guidelines on how to understand short-term, cash value life insurance.

Difficulty: Challenging

Instructions

1. Begin by surfing the Internet for relevant information on life insurance, different polices and benefits of each.

2. Contact a life insurance agent and ask about short-term life insurance. How can you use it? Short-term life insurance works as a gap insurance in periods of layoffs and is usually available online. Your application is processed the same day and your coverage starts immediately. You can terminate the policy the moment you receive the replacement plan. You can also renew the coverage.

3. Inquire the limit of coverage. Usually, you can get short-term coverage from $50,000 to $250K without a medical exam.

4. Collect more information from your agent about "whole life" insurance. This is commonly known as cash value life insurance. It provides coverage for your entire life and the premiums do not increase as you get older, unlike short-term coverage.

5. Understand the savings feature of the cash value life insurance. Your premium payments accumulate into cash value each year. You are entitled to get your accumulated cash at any point of time by surrendering your policy. This option is not available in short-term life insurance.

6. Learn about other variations on cash value life insurance, which includes universal life, variable life, adjustable life and single premium life insurance.

7. Learn how to convert short-term life insurance into a cash value life policy. Many individuals do this to stop the rising premium rates.

Tips & Warnings

• Ask insurance providers to give you cash projections on accumulated cash values every 5 years from the date you begin coverage.
• Understand the tax benefits offered under cash value life insurance.
• Make sure you get your tax options reviewed by a qualified financial advisor before buying cash value life insurance.
• Compare policies on basis of cash value, dividends and premium rates. You will need to understand different indexes used by the insurance carriers to compare policy options. Ask about "Surrender Cost Index" and "Net Payment Index."
• Beware of faulty practices. Sometimes agents lure policyholders with a promise such as coverage plus healthy investment returns.

[k1esfl]

on 5/16/2008 Some things to note: 1) Term insurance is the lowest cost insurance available. Save in a savings or investment plan, not with an insurance company through a cash value vehicle. 2) Term insurance can be bought for a 30+ year term; enough time to build an estate so you won't need to pay someone premiums anymore--you'll be self-insured. 3) premiums don't go up on cash value (certain types) but the mortality cost does. You could find yourself with a decreasing cash value account, as money is added to your premium payment to meet the monthly insurance expense as you age. Once your cash values are $0.00, either pay a very high premium or your policy lapses. Check out http://www.mydecisionhelper.com/decision/show/choose_a_term_insurance_policy to do some comparison shopping. It has a good list of what to look for in a term policy also.