Term "Plus" Life Insurance

In redefinition of life insurance, we determined that the payment made to a beneficiary as the result of the death of an insured consisted of two parts.

One was the account investment, or plus, that the policy owner had built up during the time the policy was in force prior to the insured's death. This is commonly referred to as the account value (also policy owner equity or cash value, it is the amount the policy owner could have withdrawn during the insured's life).

This part of the death benefit is the policy owner's money. It is not the life insurance element that the policy owner wished to purchase on the insured's life. The policy owner's purpose was to have the insurance company pay "its money" to the beneficiary in the event of the insured's death. This money makes up the second part of life insurance. It is these death benefit proceeds that are considered as life insurance (also called net amount at risk or pure insurance).

The amount of the proceeds may vary each year as the investment results of the policy owner's account vary, or it may remain fixed. But the element of death benefit proceeds must exist in every contract that is to be accepted as life insurance under Internal Revenue Code Section 7702. And it must exist in amounts at least sufficient to meet the cash-value and corridor tests of the code to qualify as life insurance.

In every policy, there is a charge for each $1000 of life insurance (amount at risk) that increases as the insured gets older. Now, why would a person choose to pay mortality and expenses for life insurance and, in addition, pay extra dollars into a contract to build up an investment account? but meanwhile, you must answer the following questions before investing.

. Where will these extra funds be invested?

. What return can you expect to receive from these funds? . What risks do you take?

. How much can or should you invest?

. What control will you have over the investments within the policy?

. Can you change your investment selection in the future?