Term life has no cash value, so you can’t borrow against it or cash surrender it. If you stop paying for it, you lose it.   While it may seem attractive, at the end of the term the premium will increase by 300% or more and will continue to increase every year. At that time, you will also discover that your life insurance rates for any other kind of policy will be much higher than they would have been at the time you purchased the term.

Of course, you will be told that you can “convert” the policy. Conversion in many cases means becoming "annual renewable" unless you purchase from a company with universal or whole life options.  When you convert, your premium will be adjusted to your age at that time.  Often it is less expensive to simply purchase a new policy with a different company, but, health issues in later years may limit your ability to purchase a new policy. Unless you have a reason to believe that you will not need life insurance in later years, you probably want to look at some other options.

Advantages of "Term"
Term life is appropriate for some people. Due to the low cost, it allows you to provide a higher benefit for a growing family or for protection of a mortgage. It also allows you to add a variety of riders such as spouse and child term riders. The riders on a spouse and on children can also be converted without medical underwriting in later years.

Disability waivers
If you decide that Term Life is for you, one rider you should definitely include is “waiver of cost.” This rider requires the company to pay your premium if you should become disabled. The rider is inexpensive and often guarantees that the policy will be renewed at the end of the term—at the company’s expense. However, make sure this is in writing as it is possible for the company to pay premium only during the initial term.  Usually the companies do pay the premium until the last renewal date.

Buy Term and Invest the Difference
This slogan was popular in the mid 1900s as agents teased lower income buyers with the idea of purchasing something very inexpensive and using the difference between Term and whole life to invest as a part of their retirement. Of course, the vast majority of buyers needed the “difference” for other purposes, so few investment accounts were set up.  Those who took this route, assuming that in later life they would have “investments” to pay for final expenses and therefore would not need life insurance, unwittingly dumped a tax surprise onto their beneficiaries. If the money was invested in a retirement instrument such as a qualified IRA account, the beneficiary stood to lose not only the retirement funds to final expense costs, but also the income tax on a qualified distribution. Additionally, the beneficiary would also pay higher taxes on their own income since their income would be higher in the year they took the distribution. If a person placed the difference in “non-qualified” investments such as mutual funds, stocks or CDs, he or she received a 1099 every year and thus paid tax on the growth of the funds. This tax could be much more than the cost of insurance for having a whole life policy.

Whole (or Permanent) Life
Like Term Life, whole life is what it sounds like. The basic form provides you with a benefit for as long as you live as well as a premium that never changes. It also builds cash value, giving you a source of emergency funds as well as a surrender value if you decide later on that you no longer need it.  The premiums will often be about double that of a Term policy—but these premiums won’t change.  Thus the life-long premium will ultimately be much less than a term kept to the last renewable date—assuming that you live that long. A whole life policy also has riders available so you can cover your entire family with one premium.

Universal Life
When it comes to insurance, the most knowledgeable professionals will tell you that the best features of Term and Whole life will be found in a universal life insurance policy. This type of insurance is actually a continuously renewable term which is funded with a separate savings account.  When you pay your  premium, it goes first into the savings portion where it collects interest. Then the cost of insurance and fees are deducted to pay for the life insurance side. It is possible to get a universal policy at very low cost and simply increase your premium as you get older. However, it is better to fund it with enough premium so the savings account will grow faster than the cost of insurance. The cost of insurance increases with your age, but a properly funded universal will not only pay the cost of insurance but will also build a continuously growing savings account from which you will eventually be able to make withdrawals.

Two things beyond your control could affect the premiums of a universal policy. First, the company could increase the cost of insurance to the highest allowable rates. No company will do this as they could not compete if they did. The second possibility—which is not always in control of the company either—is that interest rates could drop to a guaranteed floor—perhaps 3%. If this were to happen, your growth would be impeded and you might have to increase your premium to compensate for the lower interest. This happened in the late 1900s; people had purchased universal policies with interest rates as high as 11 to 14%. The lowest allowable rates were about 4%--lower with some companies. Agents had left their companies, and insured individuals did not fully understand the concept of a universal policy. When interest rates dropped, people failed to note the declining accumulation balances on their annual statements. As a result, many policies lapsed due to insufficient funds to pay the cost of insurance.

Declining interest rates are much less likely to be a problem in today’s market since interest rates on life insurance policies are at an all-time low. The most your interest rates could drop might be a percentage point or two, an amount easily compensated for with just five or ten dollars more of premium. Furthermore, your agent should review your policy with you each year to verify that it is still sufficiently funded to last you the rest of your life.

No (or Low) Load
In today’s market place, nearly everything we use is purchased through a chain of individuals. You purchase groceries from a store; even most “farmer’s markets” have purchased their goods from farmers and processors before putting it on the table under the tent. You purchase a car from a dealership—that is if you want service afterward.  Your insurance agent is your “middle man” representing you to the company. If the person does a good job, he will do much more than just peddle a policy. He will customize a policy to the extent possible to fit your needs. Of course, he will be paid a well earned commission for the work he does before during and after providing you with your policy. Nevertheless, companies exist that provide “no-load insurance.” Those who use agents to sell and deliver the policy will require that you pay the agent directly. Your insurance premium with thus be lower as the agent’s commission is not factored into the premium. Other companies use no agents at all; instead they market strictly online or through the mail. Usually such policies are no cheaper than working with an agent. They may appear cheaper, but when you read the fine print, you often discover that the policy was not quite what you thought it would be. No load is possible, but is not the recommended way to purchase life insurance.

Joint Life
A type of policy carried by only a few companies, but worth mentioning is “joint life.” This policy simply insures two or more people for a single benefit rather than insuring one on a separate rider.  That is, if the policy will pay $100,000, it will do so only on ONE of the insured individuals. You would choose whether payment would be made to the first to die or second (last) to die (also known as “survivor”) option. The “first to die” provides a survivor with an income. The survivor or second to die option provides heirs with a legacy. This could be a favored charity, the education of grandchildren, or simply a tax free way to pay estate taxes.

Company Ratings
You may hear a lot about “company ratings.” While it is important to work with solid, stable companies that have a reputation for paying their claims, you really don’t need to get hung up on ratings. A better source is your own friends as well as the Better Business Bureau where complaints may be recorded. Technical ratings are based on a lot of different factors which often differ from one rating company to another and frequently have little bearing on whether or not your claim will be paid. Nevertheless, you can check the history and ratings of the companies of your choice at A.M. Best or Standard & Poor's.