The Trust offers several insurance plans to members through Prudential, but all of these plans are term insurance. Now that the portability option is available for supplemental life insurance, in addition to the conversion option, many members may wonder what type of coverage will suit them best. Following is a brief description of the types of insurance available in the marketplace, and we encourage you to further research your options as needed.

Insurance Type

There are many kinds of insurance, but all insurance generally falls into two categories: term insurance and whole life insurance.

Term Insurance is the lowest cost and simplest life insurance product available. It provides protection for a limited number of years and the death benefit is only payable if death occurs during the term. If the insured survives the time period, the policy expires and has no cash value. Term is basically designed to provide a maximum amount of protection for a specific period of time at a low cost. The most common type of Term insurance is Level Term. It has a level (or constant) death benefit and a level premium for a specified number of years. Another version is Decreasing Term insurance. It is generally sold with a level premium and a decreasing death benefit. An example of decreasing term is Mortgage Life insurance; the premium stays consistent while the amount of insurance decreases over time.

Basic life insurance and supplemental life insurance from the Trust are term life insurance coverage. The term is your length of employment with the State as a Union-represented employee, and you receive the low rates for the entire length of your service.

Whole life insurance provides a death benefit and an accumulating cash value. It has a fixed premium and a level death benefit to age 100. The premiums donít increase with age, which averages the cost of the policy over your life. The cash value increases with time until it equals the death benefit at age 100. Whole life is also known as Ordinary or Permanent life insurance. The cash value is an amount of money that you are guaranteed to receive in the event of policy cancellation. You can also have the right to borrow against the cash value on a loan basis.

There are several variations of whole life, the most common being:

• Modified Premium - these policies suite individuals who expect to improve their financial situation as they typically have a lower fixed premium for the first 3 or 5 years, but will have premiums increase thereafter; or


• Graded Premium - these policies have premiums that increase each year for the first 5 years, but become fixed after that point.

These policies are used when whole life protection is needed, but the premium is such that it canít be afforded.

Another common version of whole life is Limited-Pay. These policies are a variation that make it possible to stop premium payments at the end of a specified time period without reduction in the death benefit. In other words, the policy becomes fully paid prior to age 100. The most common examples of this are:

• 10 Payment Life


• 20 Payment Life or


• Life Paid up at 65.

Variable life insurance is an interest-sensitive form of insurance. Its purpose is to combine the protection features of life insurance and the investment potential of common stocks. The key to this sort of policy is that the death benefit is completely variable. The insured has the option of choosing between several different investment mediums: stock funds, bond funds, real estate funds, or any combination. These contracts do provide a minimum guaranteed death benefit. The actual death benefit could be higher depending upon the performance of the investment vehicle chosen. Because it does rely upon the marketís growth, the cash value fluctuates. There is absolutely no guarantee of the amount of the cash value.

Universal life is a combination of term insurance protection with the cash savings value of whole life. Interest rates paid on the cash value are typically higher with Universal life that Whole life because they tend to follow the markets. Premiums can be paid in a lump sum, annually, or anywhere in between. Interest on the cash value is usually guaranteed, but will vary according to the investment performance. Each month deductions are made from the cash value fund to support the costs of the insurance protection. As long as the cash value is substantial enough to maintain the monthly costs, the policy will remain in force. Typically the death benefit reduces in proportion to the increase in cash value, thus causing a level death benefit. Another form of universal life is variable universal life insurance. Variable universal life combines the growth potential of stocks with a guaranteed death benefit. This type of policy allows premiums to be paid, reduced, or skipped at any time, and the contract will not lapse as long as sufficient cash value exists. The cash value can be split between different mediums such as stock, money market and bond funds.

Ready to read more about your current life insurance coverage or the new portability option? Or do you want to talk with Prudential about your current coverage levels? Please follow up as needed, and remember that Trust-sponsored open enrollment is the only time you can change your coverage.