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As society's safety nets continue to shrink, more

working Americans are looking for ways to guarantee
financial stability for themselves and their families.
Increasingly, they are investigating the financial producrs
offered by the life insurance industry-from retirement annuities
and disability protection to traditional life insurance coverage.
Because financial choices are among the most crucial you have to make, it
is important that you choose wisely. Like any financial product, life
insurance is complicated. But after examining the following information
?
and reviewing your financial goals with a knowledgeable life insurance
g
agent, you'll be in a much better position to proceed.

This material was compiled by the National Association of Life il

Underwriters-representing I 38,000 professional life and health insurance
agents sewing policyholders throughout the United States.

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IN.A.L'U

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 Sr,ncrqt- Aor'EnrtstNc; SecrtoN

How much life insurance do you need?

If you are providing frnancial support for people who are depending ilt$ABtillY ril$tlRAil$t
on you, you need life insurance. To determine how much you need, 4.,50* eats *rrd
deduct the total income that would be lost upon your death from the sum Sne *evastating Attergy
required for your family's ongoing financial
stability. Beyond that, it depends on your B.t' Dttt'itl Rusett. l).[-..11.
t k e t'. ll'Ls,' o n.s in
particular circumstances (e.g., whether you ll,l i I t r', t t

have considerable net worth

or few backup resources) Soon after I graduated frorn
and whether you want veterinary school. my
Northwestern Mutual agent,
insurance for other Steven Spector, sold me some
purposes, such as disability insurance. I bought an
educational funds or your inftation rider and the additionat
own retirement income. purchase options he
The solution to your recommended. which
particular needs may entail Rermitted me to add more
{7
a combination of several F
coverage at specific ages
plans, and the combination without having to answer
may be changed as your any medical questions, as
situation evolves. long as my income
justified the purchase. I
What s the difference between figured the chance of ever
term, convertibte term and collecling was stim, but with a
whole life insurance? wife, two young children and a
great tifestyte. I wasn't wilting to
Whole life insurance, the
take the chance. I increased ihe
most traditional form of coverage at every opportunity.
"permanent" insurance, can
Within a relativety short
be kept in force for as long time, I had my own
as you live. The face amount booming practice devoted
(the death benefit) and the exc,tusively to cats, with
_.
premium (the amount you 4,500 patients. lwas making
pay fbr protection each year) more money than I'd ever
are fixed at the time you thought possibte in veterinary
buy your policy and stay the medicine. Then, in my fourth
year at my cat hospital. I became
same even as you age.
ill. Cotds and respiratory infections
The policy's "cash value" grows at a frxed rate of return specified in the
progressed to recurring ftutike symptoms. I
policy and can be used as collateral to borrow against your polic;'. lost l5 pounds in nine months and spent
While permanent insurance is usually most of my free time sick at home. Finatly. I
recommended as the core of an insurance consulted an atlergist. He concluded lwas
program, term insurance is good for people who altergic to cats and totd me not to go back to
need coverage for short periods of time-vounger work. But I hetd out almost a year after my
families, say, who need large amounts of protection initiat diagnosis. As I continued to
for one year, five years or more. Lower premiums at deteriorate, it became obvious that I would
younger ages increase as policyholders age and probabty die if I continued working.
renew their policies. Benefits are paid only if cleath At about that time my insurance agent
called and said he knew I wasn't well. He
occurs during the period covered. If you stop
advised me that since I had yet to fite any
paying premiums, the insurance stops. "Convertible" term policies can be claims, I could exercise my additionat
l

exchanged for permanent insurance without a medical examination, but purchase option because I had just turned
with a higher premium. Term policies generally have no cash value and 35. I was stitt working and my income had
no residual rights if the policy is canceled. increased. I didn't have to answer any
questions about my heatth. Soon
What are the three types of permanent insurance? afterward. lstopped practicing. Now lwork
Whole life (discussed above), universal and variable life are all
permanent insurance, providing lifetime protection and
accumulating "cash value" for emergency use or
as a senior veterinarian for an animal
products corporation, earning about one-
third what I earned previousty. lf I hadn't
m
retirement. Unlike whole life, universal and variable life exercised that additionat purchase option
offer a cash value linked to interest rates. With universal lwould now be receiving $1,000 less a
life insurance you can reduce or increase the amount of month on my disabitity. Because of my
the death benefit and vary the amount or insurance, I have the same amount of
timing of premium pa)rynents. Variable money I had before.Our tifestyte hasn't
N.4.L.U
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changed. And best of at[, I'm
life allows you to allocate your premiums
reasonably healthy again.
 Sprt;nr. AD\ieR rrsrNc SncloN

?rmong a varie ty of investments offerine varyine degrees ol'risk and l(tY plt$0il tfil$uRAil$t
reward. The cash vah-re of a variable policy is rrot guarantced, althoush
some policies set a minimum death benefit. {i:::** F!.+;iriitt .*ev**
idr; F+1i-:*i" * tlre**:
How d* variable and fixed annuiiies work?
Annuitics are long-term investments used to provide I J.t' Tn t rc.t''l-l t,,r t r t
1
sr,t t

retirement income to individuals without Densions. ll I r,,ttt, t, P,'r t r st lr,

r t tt itt
to supplement a pensioner's
income or to build assets oYer a What would you do if
more limitecl period. Interest suddenly, at age 20. you had to
earnings are competitive with cope with a business to run, an
most financial products, exiremely distraught mother
irrcludinq mutual fr.rnds. With and $250.000 in debts?
variable annuities, the value My father. Walt Thompson.
varies according to the worth of died suddenty in June 1991 . at
the insurer's investments, such age 57. of a very rare blood
as boncls and commrin stock. disease, There were
questions about whether his
Payrnents can be fixed or machine and fabrication
variable. Under a fixed annuity business woutd survive, 0ur
(also called a fixecl-dollar ' creditors were worried. The
annuity), money is ' business had always been
invested in assets rvith my father's dream. Now,
fixed ratcs of returrr abruptly, it was my
and the owner is responsibility.
sLraranteed a fixecl i Fortunatety, my father had
pavmen t everv m on th. ' talked with tife insurance
Because :rnr-iuities are agent and former
schoolmate Altan Hancock.
designed to be helcl for
CLU, ChFC, ofThe Principat
many years, the interest Group, two years earlier. Allan
in arr arrnLritv builds up un a
tax-deferred basis. arrd d had urged my father lo think
about what woutd happen to his
purchasers are not taxed famity and business if
until restrl:rr payments something happened. ltis a
begin af'ter retirement. Early good thing for a[[ of us that Dad listened.
rvithdrarvals, horr'ever, resul t 0ver the next two years he bought three
in substantial penalties in aclclition to federal taxes. policies amounting io about $750,000.
5o atl we had was some life insurance
t-iow *s accelerated de;rth h*ne f!ts w*rk'? and our agent. He appeared on the scene
More than 200 insurers now off'er this "living benefits" option to ease right away. He advised us the first thing to
the financial burdens of the seriorrslv ill or incapacitated. It allorvs do was to reassure the employees they
stitt had jobs. The life insurance Dad
policyholders to receive all or part of the policy"s proceecls prior to cleath
bought enabled us to pay off 80 percent of
under certain circumstances, including the need for lor-rg-term care and our debts. But it was touch-and-go. In
confinement to a nursins home. Because payments may affect tax status some cases Attan had to calm down our
and Medicare eligibility, and will be deductcd from thc- overall benefits neryous creditors.
paid later to beneficiaries, policr'holdcrs should thorouehlv The insurance poticies on my father's life
inrestigatc optiorts irr advance. were designed to provide income for my
mother, money for two key employees-Tim
Ey using rnedlcetr tests, ,*re insurers trying to eilmir"r*?* any appliear:t likeLy i* Drenning and Buck Lightner*to buy into the
develap a serleus heatth condrtinn? business and cash to pay off creditors. To
Nledical tests Dro\,icle accurate and current inforrnation aborrt an satisfo the creditors and to keep some of the
applicant's healt[ thus enablins insurers to charge premiums that reflect low-interest loans, my mother had to retain
the level of risk an applicant represents. Because some health conditions controtling inlerest. Even so. we were able to
are easily managed through proper medication, therapy or lifcstyle arrange for Tim and Buck to have some
portion of interest in the firm.
changes, medical information sometimes makes it possible for insurers to
Today. Tim is general managerand Buck
cover applicants who might not other-\\dse be insr,rrable. More serious or is shop foreman. We have approximately
incurable conditions present an enormolls risk that an insurer simply 25 futt*time employees. I'm secretary-
cannot assume. But overall, only 4 percent of individual life insurance treasurer and serve as office manager.
applications are declinecl. Dad put att his faith in our tife insurance
.\il v\rr:Rru\ fN n \rrr) r\ agent, and he putted through for us. He did
N A.t..t What should I considei" !n naming benefici*ries? more than process a claim. He was a
]}.N*bDj,\!q;'nDJi]|.1|d€fri{!
(l) Aiways name a "contingent," or secondary, friend*and our onty retiabte guide.
 SpEcr-cr- ADrnRrlslNc Sncrrox

you were unable to nork because of accident or illness. If you don't have
long-term disability coverage at rvork, ask your life insurance agent about lU[0tt iltt ill|$llRAiltct
an individual policy designed to replace at least 60 percent of your
income. (2) Health insurance-if you don't have on-thejob coverage, an
Whr,t{.iW
individual policy is your first line of defense against ever-escalating
medical and hospital costs. You can keep premium costs down by electing
a large deductible, thereby "self-insuring" as much as you can afford. (3)
Life insurance-even if you have no dependents now, you may later. If
you buy now when you are younger and healthier, you can "lock in"
lowest-cost coverage, including guaranteed insurability.

GLOS5ARY OF LIFE IN5URANCE TERMS

O Accidentril Deatlt Beneftt - A prouision adrLed to C (|nde.nrriting (Rish Cla.s.sification)

a life insurance policy for palment of an additronal
b?nertt iJ de(dh is ca,used $ an accident. Tltis
prouision ts often called "double intLemni\."
) Automatic Preniun Loan - A proaision in a
life insurance policl that any pretniunt not paid bt
the end of tlrc g'ace paiod (usually 31 day) uill be
ltaid automatical\ \ a policy loan if there is
suf.fi cient c as h u a lue.
Q Cash Value (Cash Sunenda'Value) - The
arnount auailable in caslt upon sun'tn.der of a politl
before it becomes payble upon denth or matttrifi.
O Face Amount - 1-lte amoutzt stated on lhr face
the policy that will be paid in
at case of deatlt or
matui\. It does not inclurle diddentl additions
or nrlditional amounts palable under occidcntal
- The
prouss of clas.si;fying applicant.s.for in.surcnce lry
identi fytng su ch characteris tics as age, gender,
health, occuttntion anrl hobbie.s. People utith sinilar
charactei.stics are grcuped togetlm and are charged
a prentiunt basetl otz the group's lnel ofrisk.
l) Waiua of Preniutn - A lnoaision tlmt sets
rcrluin condilions unrlpr zuhich un irtturnnrt
poLicl trould be kept in full fonz Iry the companJ
with,out the palment 0f premiums. It is used 'mosl
frequent\ for tlrose policlholdet's who become
tolttLly anrl purnanently disabled, btLt ma1 be
ouailnble in cerlai n ollter uues
of
Q Wob Life Innrance (Shaight Life or Pennnnalt
Life) - A pkm of insurunce jn' lifb, uit h premiums
payble for a person's entit e Li,fe.

death or other special prorisions.

O Grace Period - A ltn iod (usual\ 3 1 dq's)
following each premiun du,e date, other tlrun lhe
Jirst due date, durittg zohich on oun'rLue preniunt
'ma1 be paid. All prouisions of the policl renain in
force througlrout this l:eiod.
r& Lapsed Policl - A polkl terminated at the encL
of the grate period be cause of non-paymenl of
(See Non-forfeittLre Values.)
ttremiums.
a Non-forfeittrre VahLes The ualue oJ tlre policl
- iJ
ru.nceled, either in cash or in anotlnr form of
i'nsutance. Also auaikrble to the politlholder if
requ,ired prenium paltnents are not paid.
(& Po[ic1 Loan (htda ut insurance poLity, tlrc
-
QtrLou,tzt tlmt can be bon oued at a spectfed rate of
intere.st Jrom the issuing companl b1 tlte l:olicyholdn, $$
uho uses the utlue o;f the poltcl as colhteralfor tlrc
loan. In tlte eutri the policylnLler dies uillr the debt
'prulinl\ orfttlll mtpairl, tlrc innnance cotnpany s
detlttcts ctmount boroued, plas on1 acctumt ktted
th.e
irtterest, ;t'rom tlte amount pcqable.

Q Prerniu,m - T-he pqment, or one oJ tlte regttlctr

lcriodic payments, tltat a policlholder malvs to

outn on insurance polit^s;
tD Reinslatenenl -'I'he restorutiott of a kpsed poliq^.
The companl reqtLircs euidence of ntsttrabilitl and
pa1 ment of past-dtte ln'erniu,ms,pl:u,s intenst.
rQ Rider - An amendment to an instu'o,nce Ntolicl thnt
ntodifes the poliq b1 expanding or restnr:ting its
bene.fts or excluding ceftain unditions.fion rcuerage.
O Settlement O|tion -
One of sexeral urrys, otlrcr
tlmn inmetlirile lutttp sutn palment, lhe insured or
beneftiary tan lrate the policl proceeds pakl.

lust--ltl) rl
At.l. \i,uLru.\Ls To 7rder reprints or Jor morc infonnation, urite to:
N.4.L Lt FREE REPRINTS Sler:ial Sections, Neuszueek, 251 West 57tlL Strec.t,
Neu York, NY 10019-1894

()over Photo: 'Iinn 1illirott illtLstration s :,1tt d rea E berba ch Cop\riglt @ Jinustueh, Inr. 1995. All Rights Resend

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beneficiary, just in case you outlive your first

beneficiary. (2) Select a specific beneficiary,
iltAtT|| til$tlnAil$t I

rather than having the proceeds of your life Accidents Do Ffappen

insurance paid to your estate. One of the great
advantages of life insurance is that it can be paid B.r'Jirtt Kttndmlic
.' to youifamily immediately. If it is payible Bul t i ttt orc, .W a n'lo r t d
to your estate, however, it will have to go I've been a woodworker and
I through probate with the rest of your assets. cabinetmaker for 35 years. My company,
' (3) Be very specific in wording beneficiary JK Cabinet Co. in Battimore. Md..
designations. Saying "wife of the insured" could manufactures retail-store fixtures for Ann
Taytor, Merry Go Round, JC Penney.
Naming specific children may exclude those born Sunglass Hut and many others.
later. If your child dies before y.ou, do you want the proceeds to go to that I started the business in my basement in
child's children? Changing the beneficiary designation is easy, but you 1 959 and a few years later leased a larger
have to remember to do it. space. I never realty managed the office. I
preferred being in the shop. Maybe that's
Does it make sense to replace a policy? why, even though my heatth-care policy
Think twice before you do, because in many situations it may not be to saved my tife and my business, I don't
your advantage. Before dropping any in-force policy, consider: (1) If your even remember taking the poliry out. I was
health status has changed over the years, you may no longer be insurable even surprised I had one. lt was the onty
pteasant surprise I woutd have for a while.
at standard rates. (2) Your present policy will usually have a lower The agent who sold me my Lincotn
premium rate than is required on a new policy of the same type (if for no National policy, Joe Jenkins, persisted
other reason than you have grown older). (3) You'll pay acquisition costs when I batked at increasing coverage
on two policies and end up owning only one . (4) Even if both policies pay beyond my union heatth ptan. I never
"dividends," it may be years before the nelr, policy's dividends equal those thought I'd have an accident tike I did.
of your present one, (5) If you replace one cash-value policy with The accident happened on Labor Day
another, the cash value of the nerv policl' may be relatively small for weekend in 1991 in a contraption I own
several years and may never be as large as that of the original one. catled a powered parachute. lt's a 36-foot
You should ask insurance agents for a detailed listing of cost breakdo'rvns parachute connected to a seat with a 46-
of both policies, including premiums, cash surrender value and death horsepower propeller engine. As I was
taking otf. I hit a targe tree and felt 60 feet
benefits. Compare these as well as the features
to the ground.
offered bv both oolicies. Weeks of hospitalization, back
If you decide to surrender surgery and six months in a
or reduce the value of the body cast fotlowed. Now
policy you now own and that my back and
replace it with other everything else seem
insurance, be sure that (a) better, the doctors are
the agent making the starting to reatize the
proposal puts it in'rvriting, extent of my head injuries.
(b) you pass any r e qr-rir e d No one knows whether
they witl be permanent.
medical examination I'm going through
and (c) your new policy is in speech and
force before you cancel occupational therapy
the old one. and a program to
improve my
As a single person. do I need
equitibrium.
insurance?
lve run up more
The answer almost than $200,000 in medicat
definitely is yes. You may bitls so far, and my heatth
want to conSider these insurance has covered
options: ( 1) Disability most of it. Not everything has
income insurance- gone smoothly, but Joe Jenkins has
especially important for self- been there from the beginning to
supporting singles without run interference. Whenever there
sizable assets, this can were questions, Joe got on the
phone and explained the situation.
replace a good part of the
My insurers wrote the checks.
income you 'wor-rld lose if Years ago, Joe Jenkins
convinced me that the Lincoln
,[l !\ft:u,us tRasr\fil) a\ Nationat plan would provide
N.A'L.U superior coverage. He was right. I'tl
always be gtad I tistened.