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Important Features to Look For

There's no getting around it, life insurance has a lot of strikes against it. Not only do few people want to acknowledge their own mortality, but it's hard to make a financial bet on your early demise.

Once you've gotten over those hurdles, you run into a maze of features. Unfortunately, if you want to get the most for your insurance dollars, you'll have to educate yourself in the jargon to make an informed decision.

Before you put off your life insurance needs for another year and go play catch or watch the game, take heart. Below you'll find a straightforward explanation of the various features of life insurance policies. And if you need to motivate yourself, think of all the money you'll spend on life insurance over the next several decades. The only way to get the most for your money is to know what you're buying, and whether it's necessary.

+ Term Insurance Features
+ Length of Term
Term insurance premiums are fixed, but for how long? You can purchase term insurance so that the premium goes up (adjusts) annually, or every 5, 10, 15, or 20 years. The older you are, the more likely it is that you will die, so the higher your premiums will be. As a result, the less frequently your premiums adjust, the higher the premium will be, relative to a shorter term.

A policy with a 5-year term, for example, is going to be cheaper than for 10 years, but when you renew, the next 5 years will be more expensive. It can be reassuring to know what your insurance costs will be for many years. On the other hand, if you want to change the amount of coverage, you don't want to have yourself locked in for a couple of decades.

In general, choosing a 5- or 10-year term offers a good balance between price and predictability. If you want to look at the overall bill, ask your broker to run through a few net present value calculations. This allows you to compare apples and apples. Essentially, it looks at the lifetime cost of various terms in today's dollars. The results will let you compare the total cost of selecting different terms.

+ Guaranteed Renewability
This provision means that when each term ends on your existing policy, you can sign on for another term at rates that are guaranteed today. Without this critical feature, your insurer could demand, for example, that you undergo a medical examination. If your health had declined they could simply set the premiums for your new term at whatever level they felt appropriate. A policy that is guaranteed renewable means that the insurer has to renew your policy at the agreed upon terms regardless of your health.

+ Guaranteed Renewal Rates
There's no point in having guaranteed renewability unless the level of the premiums you'll be renewing at is spelled out. Ensure that what you'll pay for each renewal is laid out term-by-term in your policy.

+ Guaranteed vs. Negotiable Premiums
If premiums are guaranteed, the insurer will adhere to a fixed rate of increases as specified at the time of the initial purchase. Negotiable basically means the issuer can charge whatever they want upon renewal. Some firms also provide preferred rates - they're guaranteed, but subject to a medical and lifestyle examination. A policy that is both renewable and guaranteed is best.

+ Convertibility Option
Most term policies are convertible. This means you can convert to a whole life policy at a stipulated premium and face value. There may be restrictions on the type of whole life policy to which you can convert, as well as the time(s) it can be done. This can be a valuable option, because going the permanent route later on in life might not otherwise be affordable, particularly if your health declines.

+ Whole Life Insurance Features 
Whole life insurance comes with its own set of features and options. Here are some of the main points to familiarize yourself with.

+ Premium Structure 
Some whole life policies require fixed annual premium payments for the life of the contract (straight life). Others provide for payments for a fixed period (e.g. for 20 years, or until age 65). Yet others provide for premiums or face values to fluctuate based on various factors. The choice you make depends largely on your future cash flow.

+ Non-Forfeiture Value
This is the amount guaranteed if you cancel the policy. It is usually the equivalent of the cash value. Also called the surrender value, it can vary widely between policies. Term-to-100 policies often have no surrender value.

+ Particpating Policies
Some whole life policies incorporate an additional savings element, and pay periodic dividends to policyholders. These are not normal stock dividends, but special amounts that can be taken as cash or used to help fund the policy. These insurance dividends are never guaranteed and amount to little more than a partial return of inflated premiums. In general, you should avoid buying participating policies.


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