Basic Types of Life Insurance

All life insurance policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. There are two basic types of life insurance: term insurance and permanent insurance.

Term Insurance
Term insurance generally has lower premiums in the early years, but does not build up cash values. You may combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income.

Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.

You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase.

Term life insurance may be more desirable for people who are starting out, on a budget or have a fixed time period when their objectives call for life insurance.

Permanent Insurance
Permanent insurance (such as universal life, variable universal life and whole life) provides long-term financial protection. These policies include a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.

Whole life plans have level premiums which means they do not increase as you age. These policies are designed and priced for you to keep over a long period of time. If you don’t intend to keep the policy for the long term, it could be the wrong type of insurance for you. Whole life insurance policies develop “cash values”. The cash value is one of the guarantee provisions of the policy. Whole life policies may be more desirable for people who need coverage for their entire life.

Tips On Buying Life Insurance

• Make sure you feel comfortable with the insurance agent and company.
• Individuals that solicit life insurance on military installations are required to obtain authorization from the Department of Defense as an authorized solicitor and all insurance agents must have a license from a state insurance department. Ask to see the agents’ permits or licenses.
• Decide how much you need, for how long, and what you can afford to pay.
• Learn what kinds of policies will provide what you need and pick the one that is best for you.
• Do not sign an application until you review it carefully to be sure the answers are complete and accurate.
• Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
• Do not feel pressured to sign an allotment form during a classroom session related to financial planning that includes a solicitation to purchase life insurance or investment products.

See the NAIC's Consumer Alert for other considerations for purchasing life insurance.

Life Insurance Deceptive Sales Practices and “Red Flags”

• Solicitation of insurance products as “investment” or “savings” products sold as or with savings or investment products.
• Non-military personnel posing as financial counselors or advisors on veterans’ benefits.
• Non-military or ex-military or former military personnel acting as investment advisors in a group or classroom.
• Pressure to rush through the application process, to complete an allotment form or to authorize withdrawal of funds from your bank account for the purchase of a life insurance policy.
• Agents selling on the base without authorization from your base solicitations officer or the Department of Defense.
• Agents selling without a valid license from a state insurance department.
• Delays in receiving a copy of the contract.

Life Insurance Consideration for Military Servicemembers

An important note to members of the armed forces involves a provision that is commonly included in life insurance policies. If you have opted out or decided to purchase additional life insurance outside of the SGLI/VGLI military offered life insurance plans, you should review the list of exclusions to the policies. Many life insurance policies include a “war exclusion” provision that specifically states benefits will not be payable if the death is a result of war or the action of a military force. The Servicemember’s Group Life Insurance (SGLI) and Veterans Group Life Insurance (VGLI) policies do not have this type of exclusion. In addition, many life insurance policies also contain exclusions about traveling on any non-commercial aircraft.