Are you planning to secure the life of your dependents after your demise? So many choices are available but before selecting the right one, think properly as it is the thing that protects your family during the times of necessity, particularly if you are the primary source of income and something goes wrong to you. Life insurance is the only way to protect your family from financial catastrophe. Several types of life insurance are available; generally two varieties are the most popular - term life and whole life, or "cash value" life insurance. Many insurance agents present the nitty-gritty of a policy however it is wise to spare a thought previous to taking up any insurance and know dark sides of the life insurance.

Term Life Insurance (TL)

Many financial experts recommend Term Life insurance for short-term needs as it the least expensive life insurance policy. However in some cases, term life insurance may not be the best option; all of the premiums you paid into the policy are gone on the completion of your term and you will locate yourself in search of coverage again. On renewal of the policy, you have to pay more due to your age. Sometimes, it may be difficult to get a new policy if you have health issues during the term. An annual “guaranteed renewal” component is also offered by some term life policies; however it may not give reason for the astronomical cost of receiving the policy.

There is no refund for the amount you paid if you survive till the end of term life insurance. Return Of Premium (ROP) term life insurance policies are offered by some life insurance companies but they come at a very high cost than a basic term life insurance policy. On expiration of your insurance term, you may be enforced to purchase a new policy if you would still like to carry life insurance coverage, which will cost more as the cost of insurance increases with age.

Whole Life Insurance (WL)

In whole life insurance, there is no flexibility on face value amounts or premiums so it is better to avoid taking anything at face value. The policy takes minimum 3 years to mature previous to you can grow any savings or cash value; what’s worse if the savings only grow at 2 to 3 percent. In case you die, your loved ones will not get the cash value or savings in the account; in its place they will get the face value which has the same amount of the policy.

You should avoid investing in a whole life or universal life insurance policy if you are only looking at short-term benefits because the surrender charges in the early years would decrease the cash value and you would finish up with less than you have paid for the policy in premiums. Think about purchasing whole life only if you desire coverage for the very long haul and have no objectives of canceling it in the early years.

Variable (VL) & Universal (UL) Life Insurance

Cash value accounts of variable and universal life insurance policies are linked to the movement of investments such as bonds and stocks. Additionally, the value of variable and universal life insurance is subject to fluctuations in interest rate. As regulated by your state’s department of insurance and the federal Securities and Exchange Commission, variable insurance policies are believed as securities contract. Always read out carefully while purchasing life insurance policy as long-term, non-guaranteed projections can be very deceiving.

It might take 10 or more years to build up those sufficient cash value to cover the premiums in future as well as sometimes fluctuations in the interest rate may prove to be fatal to the cash value. Fluctuations in the interest rate occur on the basis of the actual performance of the underlying sub-accounts you have selected to invest in. To keep away from trouble, always watch out the "guaranteed" value columns in the illustration or ask the selling agent to explain because they will display a true, worst-case scenario.

The main intention of life insurance is to ensure that your family is not cash-strapped if you expire. The amount of the death benefit and the cash value will both begin to turn down if the investments perform poorly, which may leave you and your family with less cash to wrap your burial and your family’s living expenditure. But, the death benefit and cash value will never drop below a certain level.

On a variable life insurance policy, maintenance charges can be above 2% of its cash value. You will have to pay tax on your accumulated cash value of the policy. Certain states take 2 to 3% tax of your premiums.

Variable Universal Life Insurance (VUL)

A variable universal life insurance policy is more expensive and risky as it is reliant on how well the investments joined to the cash value do in the stock market. Previous to buying a variable universal life insurance policy or making any investment decisions, many insurance experts recommend reading the prospectus thoroughly because there are a number of upfront “charges” summarized in the final print that may be unnoticed. On this policy, premiums are very high as they are utilized to cover the cost of insurance, besides the mortality and expenditure charges of the investment funds.

The insurance premium covered from the policy holder is the matter of “loads” or deductions which are utilized to cover state and federal taxes on premiums. It is considered as the risky policy as the cash value and the security of your death benefit can be affected by the performance of your investments in the stock market. Additionally, it has astronomically high surrender charges if you come to a decision to partly or fully surrender the policy in the initial 10 years. Insurance experts advise you to get variable universal life insurance policy having a guaranteed death benefit, so if the cash value begins to turn down, you won’t mislay the death benefit.

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