CLHIA-ACCAP - Consumer Information

A guide to life insurance

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5 LIFE INSURANCE POLICIES Although every permanent insurance policy is designed to provide you with coverage for your entire life, the guarantees vary in different policies. This, in turn, affects the premium you pay. Whole life: This is the traditional policy that fully guarantees the level of premiums you pay, the death benefit and the growing cash values within the policy. Interest-rate sensitive policies: Unlike whole life policies, which use very long term interest rate assumptions, these policies use current interest rates, which can be adjusted periodically if interest rate levels change. This offers the policyholder the potential of getting more coverage for less premium, but it involves sharing some of the risk with the insurer. Premiums could be increased if interest rates decrease. On the other hand, premiums could be decreased if the reverse holds true. The most popular and flexible of the interest-rate sensitive policies is universal life. It consists of two parts: life insurance and an investment account. You decide what to do with each part of the policy, and you can increase or decrease your premiums and your death benefit, within certain limitations. Earnings on the investment account may or may not be guaranteed, depending on the type of investment chosen. "New money" or "adjustable" policies usually guarantee the premiums and death benefit for a specified stretch of time (e.g., five years) and re-adjust the premiums and/or death benefit at the end of the period, according to investment conditions at that time. Variable life: Here, the premiums usually are guaranteed, but the cash values vary according to the performance of an investment fund or other index. The death benefits may be guaranteed or may vary with the fund's performance, subject to a minimum guarantee. Variations of permanent insurance FACT: Renewable and convertible term insurance: renewable means that you can renew your policy at the end of its term, for a higher premium, without submitting medical or other evidence of insurability. (Once you've reached the age of 70 or so, the policy may not be renewable.) Convertible means that you have the option of exchanging your policy for a permanent insurance policy, without submitting evidence of insurability.

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