www.stockinvestments.com-Types of Life Insurances Part 3

If you really enjoy complications, try this one: Buy a whole-life and family-income combination. Borrow the cash surrender value each year as fast as it accumulates and never pay it back. Of course, this will cut the death value of the basic policy each year. On the loan, the company will charge you about 5 per cent annual interest on your own savings. Your net cost will be your premiums, plus interest on the loan, minus loan amounts, also minus dividends, if any. This cost will be similar to that obtainable with much less fuss on a term policy with equal death value, reduced each year.

But here is the clincher: in the present Federal income-tax rules, the interest you pay on loans is deductible from your taxable income, so that after paying the tax, your net cost on this borrowing plan may be lower than on a term policy. The higher your income tax rate, the more this scheme can save you.

Short-Term Policies

Paying life-insurance premiums is an unsatisfactory and temporary expedient, to be replaced as soon as possible by an investor's own accumulated capital. With this plan, the long-lasting level premium has little meaning. An investor had better select a policy with a low-cost rate in the early years. A rise in the cost rate later on will bother him less, because he will be paying on a reduced amount of death value, and in time he will be out altogether. There are two ways for him to obtain low-cost insurance. One is a combination of a large rider and a whole-life policy, as illustrated above. The other is a short term policy, discussed below.

It seems that most life-insurance companies aim to penalize anyone who merely wants to buy simple, pure insurance. Suppose a man buys a term policy that is "convertible, but not renewable." At the end of the term, if he still wants insurance, the company forces him either to take another medical examination or to convert to a policy with a considerably higher premium.

To avoid this risk a buyer should select, at the beginning, a term policy that is "renewable," meaning that he can extend the term repeatedly by paying a higher premium rate on each renewal. The renewal privilege is apt to expire at around sixty-five years of age, but by that age an investor surely should be through with life insurance. Most companies seem to keep their renewable term contracts hidden, but these policies are not rare. Five out of six of the largest United States companies list at least one of them, usually a five-year term, in the 1956 Unique Manual. So with persistence, a buyer can find several of them, for comparison.

A short term policy is superior in these respects:

(1) life insurance is entirely separate from savings, so that an investor can change either one without automatically affecting the other.

(2) The policy-owner can cut the death value whenever he chooses without disturbing the rest of the policy.

(3) The form of death settlement is not restricted, as in a family-income rider; it can be any of the options the company offers generally.

"Industrial" is the polite word used to cover a separate group of policies with weekly premiums, offered by a number of companies. So many people pay these weekly premiums that in spite of the smallness of individual policies, their total volume is about one tenth of all life insurance issued by United States companies.