Life Insurance Basics - Spendonlife.com

Before you buy life insurance, it's important to know what options are available to you. Here's a quick overview.

Cash value life insurance comes in many shapes and sizes. The best known is "whole life," which covers you for your whole life with no change in annual premium as you get older. Others include universal life, variable life, single-premium life and adjustable life. Getting multiple life insurance quotes helps you identify which one is best for you.

Cash Value Insurance
Unlike term policies that offer the most protection for your premium dollar, cash value life policies have a savings feature. After you pay premiums for a year or so, cash accumulates. Even under most companies´ best-case scenarios, however, it takes years for the cash value to equal your premiums.

A few companies offer no-commission or low-commission policies that build cash values more rapidly. These companies are a good place to get a quote to use for comparison as you shop. As you call around, ask companies for their guaranteed projections of a policy´s cash value after five, 10 and 15 years. Get multiple life insurance quotes before making a decision.

You can borrow against your cash value or draw it out by surrendering your policy (subject to a "surrender charge"). This "savings" feature and first-year commissions of up to 100 percent of premiums often make cash value life much costlier than a term life policy paying the same amount if you die.

Is Cash Value for You?
Is cash value life insurance ever a good buy? Occasionally. Some middle-aged people convert term policies to whole life to beat ever-rising premiums or (in the case of level term) to avoid non-renewal for health reasons. Cash value life also may offer tax advantages.

Before buying cash value life, hire a fee-only financial planner or tax adviser to review your options. Be aware that advisers who get insurance commissions have a financial incentive to sell you cash value life rather than term life.

If you decide to use a commissioned insurance agent, look for one with a "CLU" (Chartered Life Underwriter) designation. CLUs are well trained and must abide by high professional standards and a code of ethics. Cash value policies are so complex that even experts need pages of calculations to figure them out. It is wise, therefore, to avoid cash value life without expert advice.

Cash value life is so profitable for insurance companies and agents that consumers must watch out for unfair sales practices. Careful shopping pays when buying all kinds of insurance. Nowhere is this more true than when the product is cash value life.