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Choosing the right type of life insurance can be confusing, but it's also an important decision. Here are some guidelines that can help you narrow down your best life insurance options.

You should consider term life insurance if:
  • You need life insurance for a specific period of time. Term life insurance enables you to match the length of the term policy to the length of the need. For example, if you have young children and want to ensure that there will be funds to pay for their college education, you might buy 20-year term life insurance. Or, if you want the insurance to repay a debt that will be paid off in a specified time period, buy a term policy for that period.

  • You need a large amount of life insurance, but have a limited budget. In general, this type of insurance pays only if you die during the term of the policy. The rate per thousand of death benefit is lower than for permanent forms of life insurance. If you are still alive at the end of the term, coverage stops unless the policy is renewed or a new one bought. Unlike permanent insurance, you will not typically build equity in the form of cash savings.

If you think your financial needs may change, you may also want to look into "convertible" term policies. These allow you to convert to permanent insurance without a medical examination in exchange for higher premiums.

Keep in mind that premiums are lowest when you are young and increase upon renewal as you age. Some term insurance policies can be renewed when the policy ends, but the premium will generally increase. Some policies require a medical examination at renewal to qualify for the lowest rates.

You should consider permanent life insurance if:
  • You need life insurance for as long as you live. A permanent policy pays a death benefit whether you die tomorrow or live to be over 100.

  • You want to accumulate a savings element that will grow on a tax deferred basis and could be a source of borrowed funds for a variety of purposes. The savings element can be used to pay premiums to keep the life insurance in force if you can't pay them otherwise. It can be used for any other purpose you choose. You can borrow these funds even if your credit is shaky. The death benefit is collateral for the loan. If you die before it's repaid, the insurance company collects what is due the company before determining what's goes to your beneficiary.

Keep in mind that premiums for permanent policies are generally higher than for term insurance. However, the premium in a permanent policy remains the same no matter how old you are while term can go up substantially every time you renew it.

There are a number of different types of permanent insurance policies such as whole (ordinary) life, universal life, variable life, and variable/universal life. For more details, see our articles on the specific types of policies.

What are the different types of permanent life insurance policies?
Whole or Ordinary Life

This is the most common type of permanent insurance policy. It offers a death benefit along with a savings account. If you pick this type of life insurance policy, you are agreeing to pay a certain amount in premiums on a regular basis for a specific death benefit. The savings element would grow based on dividends the company pays to you.

Universal or Adjustable Life

This type of policy offers you more flexibility than whole life insurance. You may be able to increase the death benefit if you pass a medical examination. The savings vehicle (called a cash value account) generally earns a money market rate of interest.

After money has accumulated in your account, you will also have the option of altering your premium payments providing there is enough money in your account to cover the costs. This can be a useful feature if your economic situation has suddenly changed. However, you would need to keep in mind that if you stop or reduce your premiums and the saving accumulation gets used up, the policy might lapse and your life insurance coverage will end.

You should check with your agent before deciding not to make premium payments for extended periods because you might not have enough cash value to pay the monthly charges to prevent a policy lapse.

Variable Life

This policy combines death protection with a savings account that you can invest in stocks, bonds and money market mutual funds. The value of your policy may grow more quickly, but you also have more risk. If your investments do not perform well, your cash value and death benefit may decrease. Some policies, however, guarantee that your death benefit will not fall below a minimum level.

Variable Universal Life

If you purchase this type of policy, you get the features of variable and universal life policies. You have the investment risks and rewards characteristic of variable life insurance coupled with the ability to adjust your premiums and death benefit that is characteristic of universal life insurance.

12 Easy Steps To Locating Lost Life Insurance Policy Documents
Tactics for Tackling a Difficult Task amid Difficult Times

Locating life insurance documents for a deceased relative can be a daunting task. For one thing, as of this moment, there are no national databases of all life insurance policies. However, with a little sleuthing, you can successfully navigate the paper trail.

Here are some strategies to help simplify your search:

1. Look for Insurance Related Documents

Search through files, bank safe deposit boxes and other storage places to see if there are any insurance related documents. Also, check address books for the names of any insurance professionals or companies. An agent or company who sold the deceased his/her auto or home insurance may know about the existence of a life insurance policy.

2. Contact Financial Advisors

Present or prior attorneys, accountants, investment advisors, bankers, business insurance agents/brokers and other financial professionals might have information about the deceased's life insurance policies.

3. Review Life Insurance Applications

The application for each policy is attached to that policy. So if you can find any of the deceased's life insurance policies, look at the application. Itwill have a list of any other life insurance policies owned at the time of the application.

4. Contact Previous Employers

Former employers maintain records of past group policies.

5. Check Bank Books, Statements and Canceled Checks

See if any checks have been made out to life insurance companies over the years.

6. Check the Mail for a Year Following the Death of the Policyholder

Look for premium notices or dividend notices. If a policy has been paid up, there will no notice of premium payments due; however, the company may still send an annual notice regarding the status of the policy or notice of a dividend.

7. Review the Deceased's Income Tax Returns for the Past Two Years

Look for interest income from and interest expenses paid to life insurance companies. Life insurance companies pay interest on accumulations on permanent policies and charge interest on policy loans.

8. Contact State Insurance Departments

The National Association of Insurance Commissioners (NAIC) has a "Life Insurance Company Location System" to help you find state insurance department officials who can help to identify companies that might have written life insurance on the deceased. To access that service, go to the NAIC's Life Insurance Company Location System.

9. Check with the State's Unclaimed Property Office

If a life insurance company knows that an insured client has died but can't find the beneficiary, it must turn the death benefit over to the state in which the policy was purchased as "unclaimed property." If you know or can guess where the policy was bought, you can contact the state comptroller's department to see if it has any unclaimed money from life insurance policies belonging to the deceased. A good place to start is the National Association of Unclaimed Property Administration.

10. Contact a Private Service That Will Search for "Lost Life Insurance"

Several private companies will, for a fee, contact insurance companies on your behalf to find out if the deceased was insured. This service is often provided through their websites.

11. Do You Think the Policy Might Have Been Bought in Canada?

If so, you try contacting the Canadian Life and Health Insurance Association for information.

12. Search the MIB database

As we had said, there's no database of policy documents, but there is a database of all applications for individual life insurance processed since January 1, 1996. There is a fee for each search and many searches are not successful. A random sample of searches found only one match in every four attempts. For more information, go to MIB's Consumer Protection page.


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