Surprising Facts About Life Insurance

September 13, 2008

Most people think there’s just one type of life insurance policy. You pay a set premium at regular intervals, over a pre-determined period of time–say, 20 years. If you die at some point during the course of those 20 years, you collect a predetermined amount of money. That money will provide your dependents with the liquid assets they’ll need in order to be able to deal with the immediate financial consequences of your death. If you survive the 20 years, your policy runs out. Either you stop paying your premiums, or you buy a new policy. This is what most people think about life insurance.

However, that situation, in fact, describes only the most basic kind of life insurance, known as “term” insurance. Most individual life insurance contracts are considerably more complicated than this. If you are considering purchasing life insurance, you need to be aware of all the options.

First, keep in mind that most insurance providers don’t guarantee fixed premiums for the entire course of the policy. Why should you be paying the same life insurance premiums at age 50 as at age 80? Statistics indicate that 80 year-old-individuals have a much higher chance of expiring than 50 year-olds and most life insurance policies reflect this. With most life insurance plans, you’ll only be guaranteed a fixed premium for a maximum of 10 years. Some plans only let you keep your premium for the first two or three years. After this introductory period passes, most life insurance policies have you reevaluated according to specific criteria (such as your age and level of health), which have been approved by the state’s Insurance.

Second, remember that your level of health counts for a great deal when it comes to your life insurance premiums. When most people are evaluated, or reevaluated, to ascertain their life insurance premiums–they aren’t likely to qualify for the basic rate that supposedly corresponds to their age and gender. Most people just don’t have that golden level of health to qualify for basic rates.

Finally, many life insurance policies don’t only lack set premiums. Indeed, many life insurance policies also lack a set term–or set payoffs.

“Whole life” policies, for example, don’t ever “run out.” These policies–generally–demand set premiums, which can get quite steep. However, they’re are guaranteed to last until you either die or decide to “cash in.” Until that point, you will continue paying the premium. Keep in mind that, if you “cashed in” on these policies without actually dying, you’d receive significantly less than if you had held on to the policy until its ultimate conclusion (i.e. your death).

“Universal life” policies also last your whole life, but don’t have a set payoff. Instead, the insurance company invests your premiums into an assortment of long-term assets, such as bonds, stocks, and mutual funds. When you die, your payoff will be the revenue from these investments. You are assured a minimal amount if

Meanwhile, the riskier “variable life” policy is similar to “universal life,” except that it lets you determine where your premiums will be invested.  Again, the policyholder is assured a certain minimal amount.

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