Modified Life Insurance
Modified life insurance is a special feature of some whole life insurance policies. “Modified” refers to the payment of the premiums. Lets say that for some reason you can’t afford the premiums today, but in several years you will be able to. This policy establishes the same premium amount for three years, and then after that, the premiums will increase once and remain at that price throughout the life of the policy. The same is true of a modified five-year life insurance policy.
Whole life insurance is considered a permanent insurance because it is intended to last throughout your lifetime. It provides a death benefit along with an investment component. Part of your monthly premium pays for the insurance itself and for administrative costs, while the rest is invested; thus building a cash value over the years.
There are many types of investments that offer high yields at a higher risk and lower yields at a lower risk. Your investment in a whole life policy is low risk and has a comfortable yield. Let’s say you are a 40 year old person and you buy a $1 million policy, and the required annual premium is $17,750. After 20 years, having invested $355,000 you have a cash value of $518,068; that’s not bad at all! The younger you are the cheaper your premiums will be, so buy while you are young. The simple logic is that a 60-year-old is more likely to die sooner than a 40-year-old thus rating the premiums much higher. Let me emphasize that whole life insurance is intended to be coverage that lasts for life, therefore, it is better to buy such a policy when you are young and healthy. Your premiums will be lower and your policy will have more time to build up a cash value.
You must not let your premiums lapse as it is critical that premiums be paid in order to keep a whole life insurance policy active. This type of coverage is typically more costly than other types of life insurance, however there are ways that you can save money. You can save by paying your premium on an annual basis rather than a monthly basis as you will drastically reduce the amount of interest that you must pay over time.
You can expect to pay a higher premium for sports such as sky diving and bike racing and others that put you at a very high risk. Since these sports come with a hefty price tag as far as life insurance is concerned, you may want to curtail this activity in order to lower your premium.
Other causes of increased premiums are medical conditions such as diabetes, heart disease and high blood pressure. It would be wise for you to seek treatment and correct any medical conditions before you apply for your insurance policy. It only makes sense that if your disease is under control, you can cut your life insurance premium by as much as 50 percent. Let me add that a non-smoker is placed in a lower risk pool and can enjoy lower premiums.
There are other types of permanent insurance other than whole life. There is universal life, variable life and variable universal life. Universal life policies allow you to withdraw or borrow against the cash value that your policy has built up, while variable life policies offer expanded investment options. Variable universal life policies combine both these options, offering expanded investment options and access to your cash value.
Whole life insurance is not just one single product as there are a number of different types. You have the traditional, variable, universal, variable universal, single premium, participating, non-participating, limited pay, interest sensitive, indeterminate and economic whole life policies. Talk to your insurance agent before making a final decision because the type of policy you purchase can make a huge difference to your financial goals. Research each of the key features and analyze your options.
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