I don't know that I can explain it any better, but here's what we did . . .

Right after we got married, we looked at Universal. It was being sold to us as an investment tool. The main idea was that the value would grow from interest and it would fund itself. I almost went that route but then I asked the salesman "What happens if the interest drops to below the level that it will fund itself?". It suddenly looked like a bad deal to me because it would then require substantial investments be added to it to keep its value. My understanding is that Universal is complicated and can be good or bad depending on what interest rates do.

So, we started whole life policies while we were still young which made it cheaper. I think we have $50,000 each whole life. Our whole life policy does have some cash value to it to where, we could take the cash and cancel the policy if we needed to.

More recently, after we had the boy, we added much higher value, 10 year renewable term policies. No cash value, no interest, just a flat rate for so much coverage.

I'm worth more dead than alive.

Web is spot-on about Universal and the way it works.

There are also different kinds of term: decreasing or level.  Decreasing means just what is says.....you buy X amount of decreasing term today for X amount of dollars, then over the course of a number of years (10, 15, 20 years being the most common) the amount of insurance will decrease in dollar amount until it reaches a "set" dollar amount of insurance (most are somewhere between $2,000 - $5,000...ask insurance salesman before you buy it what the "set" or final amount of insurance will be at the end of the term).

Level term means you buy X amount of insurance for X amount of dollars for a set number of years (this can vary anywhere between 5-30 years).  Insurance remains the same amount, premium remains the same amount until the end of the term.  Once the end of the term passes, there is NO insurance coverage unless you convert the policy to a whole life insurance policy. 

Whole Life insurance means just that.  You buy X amount of insurance, pay X amount every year for that insurance.  There are various whole life policies....some are "paid up" in 20 years, some 30 or longer....again, ask insurance agent how long you pay for it.  Whole life does accumulate cash value and usually dividends too.  Cash value means after paying premiums for a certain number of years, you can cash it in, draw out whatever cash value is in the policy, but you then have NO life insurance coverage left if you do that.  Also beware......the cash value of a policy will NEVER be anywhere close to the amount of your coverage NOR WILL IT BE ANYWHERE CLOSE to the number of years of premiums you've paid into it!! Some whole life polices allow you to draw a loan against the cash value that's accumulated in the policy.  It used to be you could draw a loan of 90% of the cash value, and then you had the choice to pay it back in payments or not.  If you don't pay it back, the loan amount is DEDUCTED from the amount of your insurance policy at the time of your death.  Dividends could either go back into the policy (adding to the cash value or loan value or death benefits) or sent to you in a check monthly or quarterly. 

I've been out of the insurance business for a while, but this was how it worked when I was employed at John Han**** Insurance.  The best advice I can give you is MAKE SURE the salesman is selling you the EXACT type of insurance policy that you want!!  Ask lots of questions!  Try to buy on a "10 day free look" option if it's still available; this gives you 10 days to see the actual policy, allowing you to be sure it's exactly what you wanted and the premium is what you were told it was going to be, and if it turns out to be something different than you thought you were buying you are allowed to cancel it with a full refund of any upfront premium you paid.

Also ask about beneficiary.......you are allowed to name as many primary and/or secondary beneficiaries as you want and can split it up among them in many different ways by using percentages.  If they tell you that you are only allowed to name one primary and one secondary, they're lying to you. 

If you have any other questions Mz, I'd be happy to help you out if I can.

-- Edited by ghostdancer on Saturday 28th of March 2009 06:01:58 PM

With the Whole Life policy we have, we pay a monthly premium until we die. When we die, our heirs get $50k . . . no interest. Ours does have some cash value to where, we could take the cash out of it now, but it is a greatly reduced amount from the face of the policy AND it would end the policy.

if you plan on living a long time....get a whole life
if you plan on kicking the bucket soon...get a term.


my advice on insurance.



actually from what I hear these guys have some really good advice and insurance policies.

http://www.modern-woodmen.org/Public/ProductsServices/Life/Permanent/

-- Edited by allycat on Sunday 29th of March 2009 09:00:18 AM

While I've never heard of a term insurance policy with a rider like that, it doesn't mean it doesn't exist.  So I'm going to assume it does.  Ok, let's say you buy that type of a policy for X amount of insurance coverage and pay X amount of dollars for it during the 20 years.  Let's also say that you decide in the last year to convert that policy to a whole life.  First, there is no way that every dollar you spent on the first policy is going to rollover into a new policy; that just doesn't make good business sense.  They are most likely going to pro-rate a portion of the premiums you paid into the new policy, and I seriously doubt it would be a substantial amount of the money you've already paid.

Second, you have to remember you will be older than you currently are when this rollover happens.  The new policy is going to cost more at that time because you're older than you were when the first policy was issued.  You also might not qualify for the amount of insurance coverage you want at that time simply because you're older.  There could also be medical issues involved at that time that would disqualify you from buying more insurance coverage and/or would cost you even more money....even if you chose to take the same amount of insurance coverage that you had during this entire time period.  Age and health have a lot to do with how much coverage you can buy, and it also determines the amount of the premium you're going to pay.  It's entirely possible that if you kept this type of policy for 19 years then wanted to convert it to whole life, they might not insure you for the same amount of coverage you had during those 19 years; or if they did, it's entirely possible the cost of the premium is going to double or triple. 

Again, this is something you'd want to carefully question before you buy.  While most insurance agents don't outright lie, some are very good at bending the truth to make the sale........they work on commission, the bigger the policy is that they sell, the more money they made from the sale and continue to make for a few years after that sale.