Check with the agent or company that issued your present
policy - get both sides of the story. In any case, don't give up your present policy until
you are covered by a new one.
How Much Do You Need?
To decide how much life
insurance you need, figure out what your dependents would have if you were to die now, and
what they would actually need. Your new policy should come as close to making up the
difference as you can afford.
What you Have
In figuring what
you have, count your present insurance, including any:.
where you work
Also add other
assets you have:
What you need:
In figuring what
you need, think of income for your dependents:
future needs Think also of cash needs:
the expenses of
a final illness · paying taxes · mortgage · other debts
What is the right
All life insurance
policies agree to pay an amount of money when you die, but all policies are not the same.
Some provide permanent coverage and others temporary coverage. Some build up cash values
and others do not. Some policies combine different kinds of insurance and others let you
change from one kind of insurance to another. Your choice should be based on your needs
and what you can afford.
A wide variety of
plans is being offered today. Term and whole life are the two most common and basic kinds,
with some combinations and variations. This guide will give you a brief description of
both. For detailed information, check with an insurance agent or company.
covers you for a term of one or more years. It pays a death benefit only if you die in
that term. Term insurance generally provides the largest immediate death protection for
your premium dollar.
insurance policies are renewable for one or more additional terms even if your health has
changed. Each time you renew the policy for a new term, premiums will be higher. Check the
premiums at older ages and how long the policy can be continued.
insurance policies can be traded before the end of a conversion period for a whole life
policy even if you are not in good health. Premiums for the new policy will be higher than
you have been paying for the term insurance.
Whole Life Insurance
Insurance covers you for as long as you live. The common type is called straight life or
ordinary life insurance - you pay the same premiums for as long you live. These premiums
can be several times higher than you would pay at first for the same amount of term
insurance, but they are smaller than the premiums you would eventually pay if you were to
keep renewing a term policy until your later years.
Some whole life
policies let you pay premiums for a shorter period such as 20 years, or until age 65.
Premiums for these policies are higher than for ordinary life insurance since the premium
payments are squeezed into a shorter period.
policies develop cash values, if you stop paying premiums you can take the cash - or you
can use the cash value to buy continuing insurance protection for a limited time or a
reduced amount. (Some term policies that provide coverage for a longer period also have
You may borrow
against the cash values by taking a policy loan. Any loan and interest on the loan that
you do not pay back will be deducted from the benefits if you die, or from the cash value
if you discontinue the policy.
You can combine
different kinds of insurance. For example, you can buy whole life insurance for lifetime
coverage and add term insurance for the period of your greatest insurance need. Usually
the term insurance is on your life - but it can also be bought for your spouse or
Insurance policies pay a sum or income to you if you live to a certain age.
If you die before that age, the benefit is paid to the person you named as beneficiary
Other policies may
have special features which allow flexibility as to premiums and coverage. Some let you
choose the death benefit you want and the premium amount you can pay. The kind of
insurance and coverage period are determined by these choices.
One kind of
flexible policy, often called Universal Life, lets you vary your premium payments every
year and even skip a payment if you wish. The premiums you pay (less expense charges) go
into a policy account that earns interest and charges for the insurance are deducted from
the account. Here, insurance continues as long as there is enough money in the account to
pay the insurance charges.
Variable Life is a
special kind of insurance where the death benefits and cash values depend upon investment
performance of one or more separate accounts. Be sure to get the prospectus provided by
the company when buying this kind of policy. The method of cost comparison outlined in
this Guide does not apply to policies of this kind.
FINDING A LOW COST POLICY
After you have
decided which kind of life insurance is best for you, compare similar policies from
different companies to find which one is likely to give you the best value for your money.
comparison of the premiums is not enough. There are other things to consider. For example:
Do premiums or
benefits vary from year to year?
How much cash
value builds up under the policy?
What part of
the premiums or benefits is not guaranteed?
What is the
effect of interest on money paid and received at different times on the policy?
Index numbers, which you get from life insurance agents or companies, take these sorts of
items into account and can point the way to better buys. These are two types of cost
comparison index numbers. Both assume you will live and pay premiums for the period of the
Yield Comparison Index
The Life Insurance
Yield Comparison Index is a measure of cash value growth over the index period which takes
into account the interest credited, the estimated value of the death protection provided
and the expenses charged. A higher yield index number generally indicates a better buy.
Since this index reflects items other than interest earnings, it may differ from the
credited interest rate advertise or guaranteed in your policy. For the same reasons, the
Yield Index may differ from the return on a pure investment like a savings account.
Keep this in mind if you attempt to compare Yield Indexes with investment returns.
Net Payment Cost
The Net Payment
Cost Comparison Index helps you compare costs over the Index period assuming you will
continue to pay premiums on your policy and do not take it's cash value. It is useful if
your main concern is the benefits that are to be paid at your death.
provide benefits on a more favorable basis than the minimum guaranteed basis in the
policy. They may do this by paying dividends, or by charging less than the maximum premium
specified. Or they may do this in other ways, such as by providing higher cash values or
death benefits than the minimums guaranteed in the policy. In these cases the index
numbers are shown on both a guaranteed and currently illustrated basis. The currently
illustrated basis reflects the company's current scale of dividends, premiums or benefits.
These scales can be changed after the policy is issued, so that the actual dividends,
premiums or benefits over the years can be higher or lower than those assumed in the
indexes on the currently illustrated basis.
Some policies are
sold only on a guaranteed or fixed cost basis. These policies do not pay dividends; the
premiums and benefits are fixed at the time you buy the policy and will not change.
The most important
thing to remember is that, when using the Net Payment Cost Comparison Index, a policy with
smaller index numbers is generally a better buy than a similar policy with larger index
numbers. When using the Life Insurance Yield Comparison Index, the opposite is true: a
policy with larger Yield Comparison Index numbers is generally a better buy than one with
smaller Yield Comparison Index numbers.
numbers only for similar policies - those which provide essentially the same benefits,
with premiums payable for the same length of time. Make sure they are for your age, and
for the kind of policy and amount you intend to buy. Remember that no one company offers
the lowest cost at all ages for all kinds of amounts of insurance.
in index numbers should be disregarded, particularly where there are dividends or
non-guaranteed premiums or benefits. Also, small differences could easily be offset by
other policy features, or difference in the quality of service from the agent or company.
When you find small differences in the indexes, your choice should be based on something
other than cost.
Finally, keep in
mind that index numbers cannot tell you the whole story. You should also consider:
The level and
quality of service from the agent or company, the strength and reputation of the
history (track record) of how the company treats various classes of policyholders, e.g.,
Longtime policyholders versus current purchasers.
The pattern of
policy benefits. Some policies have low cash values in the early years that build rapidly
later on. Other policies have a more level cash value buildup. A year-by-year display of
values and benefits can be very helpful. (The agent or company will give you a Policy
Summary that will show benefits and premiums for selected years.)