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Things to look for in a life insurance policy

Date: 12 March, 2010

The primary types of life insurance policies are term, whole life and single-premium life.

A term policy is purchased for a set period of years. If the insured dies within that time, the death benefit on the policy is paid in full otherwise it expires and a new one must be purchased.

It is important to make sure the term life policy guarantees renewability and does so without mandatory health exams.

Another important option is to ensure the policy can be converted to a whole life policy upon expiration. This may allow you to avoid a health exam and not risk denial based on health.

Whole life insurance policies have higher premiums but a portion of the premiums is invested and the insured can borrow against that portion.

One version of whole life is universal life. An insurer issues universal life based on a projection premium comprised of interest rates and insurance costs. If these projections fail, the insured can be charged higher premiums later in the policy, cash values may drop or the policy itself may be lost.

A lump sum of money is paid into a single-premium life insurance policy and, as a result, the policy remains paid up until the insured dies. The company sets the death benefit based on the sum invested and the health and age of the insured.

Some policies permit tax-free access to assist in paying for long-term care in the event it becomes necessary. Others allow withdrawal if the insured is diagnosed with a terminal illness and has less than a year to live.

Perhaps the most important factor in obtaining insurance is the company's stability. Investigate the company's ratings through Standard & Poor's, A.M. Best or Weiss, Moody's and Fitch.

Obtain several quotes and compare the policies before making a decision.