Do Life Insurance policies grow year by year? How do they work?

If I wanted to get one for myself, my whole family has one for themselves, and my partner has one for himself, would money automatically go into it from my paycheck? And do they grow year by year as long as I'm employed?

I want to make sure my family/partner can reap some benefits if I were to die, since they're doing the same for me. And I feel like at my age, 26, I should already have one for myself.

In anycase, how do they work, and do they grow year by year?

Thanks!!
Additional Details
By the way, my partner and I live together but do not have a civil union together or any form of legal binding. Though I'm the beneficiary on the insurance.

Same with my family.

Does this mean that the life insurance can somehow NOT go to me, or does it not matter at all?

Some of these answers seem to be from individuals who haven't seen what's gone on in the insurance industry for the last fifty years.

First: Congratulations on even looking at the situation. A lot of folks don't until it's way too late.

Second: Let's discuss some various types of life insurance. You have said that you would like your family and partner to reap the benefits if you were to die.

Here are the basic forms of insurance.
First: term - this is for a specific period only. Most companies offer 10, 15, 20, and some 30 and even 40 year term policies. There is no cash value accumulation within a term policy and it is basically renting your insurance for a specified period of time. It has its place, but in your situation I wouldn't consider it because the one bad feature of it is that you only win if you die. Most beneficiaries actually appreciate if the policy is in force at your death :-) and only about 1-2% of all term policies ever pay off because most folks drop it as they get older, simply because the costs become exhorbitant.

Your question about if it grows year by year also indicates that you're looking for something else.

Second: there is permanent insurance. This is insurance that will cover you for your lifetime, no matter how long. There are various types of permanent insurance. A lot of folks only know of an older one called Whole Life. This is an insurance in which there is cash value growth within the policy. The premiums are fixed in this type of policy. The basic idea is that you make premium payments and what is above the necessary to insure you goes into the General Accounts of the insurance company and they usually guarantee you about 3-5% on this. However there is almost never any cash accumulation over the first five years and what they give you barely, if it even does, keeps up with inflation. Also as you age, the cash accumulation can be used by the company to pay for policy charges so these often lapse or the person winds up at retirement with little if anything in the policy.

There was another insurance called Universal Life which is similar in many ways to the whole life, but here the premium payments are flexible, but again any cash value accumulation is put into the General Accounts of the insurance company and guaranteed at about 2-5%.

Third:
Because both of these types of insurance didn't provide real cash value accumulation (and because back in the 1970's A L. Williams was creaming the insurance companies with "buy term - invest the difference", the insurance companies came out with a fantastic product, and it is a very very good one for a lot of folks. It's called a Variable Universal Life policy. Here, the cash value accumulates in Sub Accounts (which are owned by the insured and NOT the insurance company). These accounts are out in the market and get market rates of return. Depending on the portfolios that you are in, these can average anywhere from 8 - 12% over time.

These policies not only provide life long insurance for you, but the cash value in the account may be accessed tax free (as it may in the other cash value insurance) and if structured correctly, this can add much money to your retirement or even before so you and your partner may enjoy it even while you're alive (as well as having the death benefit if something happens to you).

About eight years or so ago, the insurance companies also created Equity Indexed Universal Life. In these policies, the cash value accumulation is a result of being compared to some index, usually the S& P 500 over the year. A lot of these policies average about 8% over time. They often usually have a cap and a floor and they are often very attractive to folks who like guarantees and who may be a bit older.

You're going to hear a lot of "sound bites" here. A lot of simply "buy term, invest the difference". "All cash value insurance is evil" etc. These are usually from folks who aren't even licensed to discuss the variable forms of insurance in front of someone.

I'm dually licensed, both with an insurance license as well as a security license (no, this is not a solicitation for business, I'm simply attempting to answer your question in as concise and correct as possible in front of a computer where I can't illustrate or draw things for you.)

I suggest that you might like to have your library request "The New Life Insurance Investment Advisor: Achieving Financial Security for You" by Ben Baldwin. It's a bit dry, but you can see for yourself that what I've said is accurate.

As an aside, remember if you get your life insurance from your employer, often it's only about 2x your salary and it usually ends when your employment does. Please, if you speak to any agent local to you, make sure he/she is dually licensed so you can get the full story and not just the part of it that the singly licensed person wants to babble because it's the only way they can sell the only thing they have available.

Does this mean I think term is bad? Absolutely not. I often recommend it to folks who have a need for it, but usually it's a convertible policy that can be moved to a permanent one as their situation improves. However, term is NOT the be-all and end-all and it often increases in cost to a point where you can no longer afford it as you age. Also, say you're in a 20 year term, what happens if at age 45 you are suddenly diagnosed with cancer, or have a heart attack, etc. Your chances of having your policy renewed at age 46 again have dropped to about zero. If you died then at age 47 your loved ones would get nothing since no policy would be in force.

BTW _ I've written a lot of policies for folks who have partners. Some companies simply want proof that there is also a policy in force on the partner listing you as a beneficiary to have them also listed as a beneficiary on yours. There has to be some sort of insurable need for a policy to exist. A partner realtionship is one. Also, being very very cold here for a moment. If at any time in the future, the relationship should dissolve. Remember to change the beneficiary with your carrier. I've seen cases where it wasn't done and the new partner/spouse didn't get what the insured really wanted because the old beneficiary hadn't been changed in a timely manner.

Term insurance does not grow in value. I happen to think term is the better option.

Whole life does have a cash value that accumulates, but it's not worth it - it grows very slowly and the premiums are much higher.

I am an Underwriter at a life insurance company. The person above me said something about "so the insurance company doesn't ask a bunch of questions about your beneficiary". Not true - we would never question who you list as your beneficiary. The proceeds of your life insurance can be left to whoever you please. You can also change your beneficiaries as much as you want. Don't think it's going to cause any questions or problems by listing your partner.

Okay, I do have a story about a time we were unable to grant a beneficiary request. The only time we have ever said "Sorry, this person can't be your beneficiary" was when a lady tried to make her CAT her beneficiary. That doesn't exactly work. As long as it's a human being, go for it!

See money.cnn.com and money.aol.com. Both have sections explaining different types of life insurance.

My suggestion....get a 30 year level term policy. It's pretty inexpensive(around$30-$40/month depending on face value) and you can have it automatically drafted from your checking account each month. The term policy will not grow year by year and will never have a "cash value". If you buy $500,000 of coverage, the only thing you will ever get is the $500,000 if you die.

The other type is "whole life". It IS the kind that grows in value over the long haul. The only problem is......it's much more expensive than term and it only grows at 5%-6%. If you took the difference in premium from the term policy and the whole life policy and invested it in a good mutual fund for 30 years, you would definately be a millionaire. A good mutual fund will have a 10%-13% return rate.

My suggestion on the beneficiary.........when you're applying for the policy, name your estate as the beneficiary(trust me...do this even if you currently have nothing to leave behind)....that way the insurance company doesn't ask a bunch of questions about your partner. Once the policy has been issued, you can change the beneficiary to whomever you choose.

There are two basic flavors:

1) Term life. Term life is cheaper because it doesn't accrue value. Frankly, I think it's the better of the two as well.

2) Whole life. Whole life is like a combination term life and savings account. A larger amount is deducted, and you eventually have a life insurance policy which no longer requires a dividend because you've paid into it for some time. BUT it would be cheaper to go with term life and put the difference between a term policy and a whole policy into a savings account, imo.

As to whether they're deducted from your paycheck or not: It depends on your employer. Most employers will offer a term policy, and it's deductible. A larger employer will offer a choice of policies as well. Otherwise, you can buy an insurance policy on your own and it's up to you to keep up with the payments.

To me, an insurance policy mostly has to do with making sure that you can pay your own funeral costs, unless you have dependent children. Then, you would also want to make sure that your surviving spouse/partner has enough money to make ends meet until the children are of age.

But having one, whether you view it the way I do or not, is the responsible way to go. You don't want to depart this world and leave your family or loved ones with a financial burden.

There are LOTS of different types of policies. Why do you want it to grow year? Wouldn't it be better to just pick the payout amount you need, up front? So if you get hit by a bus next mont, there's enough money to fill the goal?

Policy premiums for a private policy, do NOT get deducted from your paycheck - but you might be able to set it up to deduct from your checking account every month. Or once a year.

You need to sit down with a local agent, AFTER setting the goal of the policy, and figuring out the most cost effective way to meet that goal.

they typically do not grow year by year. usually you will just say I want a 500.000 policy and the agent will tell you how much that will be a month. some will set up a EFT (electronic funds transfer) but that's up to you, i dont know of any that are not employer related that will pull from your paycheck some polices (whole life) will actually have a cash value at some point, a term life policy stops after the length of the term. at your age its a good time to buy one, because it will be inexpensive.

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