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The Basics of Life Insurance:

According to the NAIC, there are three life insurance basics that all consumers should consider:

1. Start by considering how many people are financially dependent on you, what their major expenses are likely to be and whether you're likely to leave them with substantial debts or taxes to pay on your estate. Life insurance can help on all of those fronts.

2. Evaluate the two main types of life insurance: term and permanent. As its name implies, term life insurance pays a death benefit if you pass away within a specified time period (typically a term of one to 20 years). In contrast, permanent life insurance (which comes in many varieties such as whole life, universal life and variable life) includes both a death benefit and the ability to build up cash value over your entire lifetime.

In general, term life insurance is much less expensive than permanent life. In fact, term life premiums have decreased markedly during the past decade due to the fact that Americans are living longer on average. Consumers who purchased their policies more than a few years ago should check out current rates. Also, consumers should ask whether the policy they are considering charges a surrender or cancellation fee if they decide to drop the policy or switch to another one.

3. Understand the major factors that can affect life insurance premiums. Some are uncontrollable, like the age at which one purchases a policy or a serious pre-existing medical condition, like cancer or heart disease. Other factors are much more dependent on an individual's behavior, like poor health habits (e.g., smoking and excessive drinking), driving record (e.g., accidents and Driving While Intoxicated citations), engaging in dangerous hobbies (e.g., sky diving, car racing or rock climbing) and even where one lives, since mortality rates in a geographic region may be used by life insurance companies to help establish premiums.
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