          
          
          
                 Using Insurance Products As An Investment
          
          
                       An Overview of Life Insurance
          
               With more than $9 trillion of insurance in force,
          life insurance is one of the largest industries in the
          United States.  While each household in America carries
          an average of $100,000 in life insurance, many people
          have difficulty understanding what life insurance is
          and how it works.
               Life insurance provides financial security. 
          Whether providing for replacement income due to the
          death of a breadwinner, meeting financial emergencies,
          sending a child to college, supplementing retirement
          income or paying for final expenses, people want the
          ability to pay for needs that may -- or will -- arise
          in the future.
          
          
          Term versus permanent
          
               There are two basic types of life insurance
          products: term and permanent insurance.
               Term insurance is purchased for a specific period
          of time and provides benefits only if the insured
          person dies during the period covered by the policy. 
          If the policy is purchased for one year, for example,
          and the insured is alive at the end of the year, no
          benefit is paid.  After the term expires, the person
          who purchased the policy may have the option of
          renewing coverage, but it will be necessary to pay a
          higher premium.  As the insured grows older, premiums
          will usually increase as the probability of death
          increases.
               There are several types of permanent insurance,
          the most popular of which are universal life and
          traditional whole life.  Universal life, a relatively
          new product, allows the policyholder a flexible premium
          payment schedule and the option to change the death
          benefit from time to time subject to certain
          restrictions.  The product also allows the insurance
          company flexibility in adjusting rates at which
          interest is credited to the policy values.  However,
          the mainstay of the industry remains traditional whole
          life insurance.
               Traditional whole life offers insurance protection
          for the insured person's entire life at a fixed premium
          payment schedule.  If a person buys a $50,000 policy,
          for example, that $50,000, called the "face value" of
          the policy, is the amount that generally will be paid
          out whenever the insured dies.  As long as the
          policyholder pays the required premiums, the policy
          remains in effect.
               Permanent life insurance also allows policyholders
          to receive financial benefits while they're alive
          because their insurance builds up a sum of money called
          the "cash value."  In fact, more life insurance
          benefits are paid to people who are living than to
          their beneficiaries.
          
          Cash value and how it works
          
               Cash value is the amount of money policyholders
          would receive as a refund if they cancel their coverage
          and surrender their policies to the company.  The cash
          value (also called the cash surrender value) continues
          to grow as long as the policyholders pay the premiums.
               A policy's cash value is generally a result of the
          payment of "level premiums" throughout the payment
          period of the policy.  Since mortality rates increase
          as people grow older, the actual cost of insurance also
          increases.  If premiums were changed to match the cost
          of insurance each year, the result would be
          progressively higher premiums as people grew older.  To
          avoid this dilemma, premiums are "leveled" which
          results in premiums being collected in the early years
          of a policy that are higher than necessary to pay
          current benefits.
               The "excess" premium paid in the early years of
          the policy is held in a reserve which, together with
          accumulated interest and the payment of future level
          premiums, assures that sufficient funds will be
          accumulated to cover the increasing risk of death as
          the insured grows older.
               The policyholders are entitled to their portion of
          this reserve if they should decide to cancel their
          insurance protection by surrendering the policy.  This
          portion of their reserve is the cash value at any given
          time.
               Policyholders often borrow from the cash value of
          their life insurance policies.  During the Great
          Depression of the 1930s, for example, many people used
          the cash value of their policies to buy food, pay taxes
          and keep their farm or home from foreclosure.  Today,
          people can use their cash value to pay tuition, make a
          major purchase, or provide for an unexpected emergency.
               Whatever the reason for borrowing from the cash
          value of their policies, people should use caution.  As
          long as the loan is repaid, the value of the policy
          rebuilds.  But if the insured should die before the
          loan is repaid in full, the outstanding loan amount is
          subtracted from the death benefit, if a person has a
          policy with a death benefit of $50,000, for example,
          and the policyholder dies with a $5,000 outstanding
          loan balance, the actual death benefit would be
          $45,000.
          
          Group life insurance
          
               One of the most widely known types of insurance is
          group life insurance, which is really term life that is
          purchased for a number or "group" of people.  Group
          life insurance makes up approximately 40 percent of all
          life insurance now in force in the United States and is
          usually offered as part of a company's or an
          organization's benefit plan.
               In a group policy, a number of people are insured
          under a single contract, called a "master contract." 
          This contract is actually an agreement between the
          insurance company and the group policyholder which is
          either the employer or the sponsoring organization.  In
          most group policies, the group policyholder selects the
          amount of coverage each member is to receive or can
          elect to purchase.
               Each insured member of the group selects his or
          her own beneficiary.  If an insured member leaves the
          group, that person can, within a limited period of
          time, convert his or her group policy to individual
          coverage without presenting evidence of insurability.
          
          Agents add value
          
               Whether it's individual term or permanent
          insurance, group insurance, or a combination, a
          knowledgeable insurance agent is the best resource for
          selecting the right policy.  Since the mid 1800s, life
          insurance agents have been helping people choose the
          best plans to meet their needs.
               The agent starts with a good understanding of each
          customer's future objectives or "needs."  After
          reviewing the person's financial circumstances, such as
          social security benefits, group life insurance
          programs, investment plans and savings accounts, the
          agent can help determine an insurance program to assist
          in achieving the financial objectives for the customer
          and his or her family.
          
          Life insurance companies manage risks
          
               To provide financial security, a life insurance
          company must successfully manage risks.
               The company must predict as accurately as possible
          the mortality risks faced by an individual or group, so
          it can determine when it will need to pay benefits and
          how much those benefits will be.  Then, to assure that
          the funds will be available to pay all benefits, the
          company must control its financial risks by safely
          investing the premiums it receives and controlling its
          costs.
               The rate of mortality is the rate at which insured
          people are expected to die.  Expected mortality is
          based upon a company's own experience as well as data
          from published mortality tables which contain
          statistics on the average lifespan of millions of
          people.  This information, together with other
          variables such as health history, enable insurance
          actuaries to predict the risk of insuring any person of
          a given age and thus determine the premium, called the
          "risk premium," required to assume that risk.  An older
          person, for example, or someone who smokes, is assumed
          to be at a higher risk than a younger person or a
          nonsmoker of the same age.  This prediction has nothing
          to do with the actual life span of any specific
          individual, but does provide a fairly accurate estimate
          of when someone of similar age and circumstance might
          die.
               The determination of total premiums paid by the
          policyholder also includes provisions for operating
          costs, including commissions and underwriting expenses,
          profit and the investment income that insurance
          companies earn from the investment of reserves. 
          Insurance companies invest the reserves according to
          state insurance laws and regulations.  These
          investments may include qualified municipal, state and
          federal obligations, corporate bonds, real estate, and
          mortgages.
               Insurance companies must always look ahead,
          carefully monitoring mortality rates, investing wisely
          and controlling expenses to gain the resources they
          need to pay benefits to policyholders or their
          beneficiaries and to earn a profit.  In return for
          their premiums, policyholders are assured the ability
          to provide for tomorrow's needs.  Instead of risk, they
          find security, and brighter prospects for themselves
          and their families.
          
          
                            Whole Life Policies
          
               Whole Life Insurance is sometimes called
          "permanent insurance" or "ordinary life" and is
          designed to stay in force throughout one's lifetime.
               Generally, the annual premiums (payments) for this
          type of policy remain the same throughout the life of
          the insured.  The premiums are higher in the early
          years when compared to a straight term life policy. 
          However, due to the buildup of the cash values during
          those early years, whole life policies tend to remain
          in force when the premiums for the term life policies
          have become prohibitively high.
               If the owner of the policy decides to stop paying
          the premiums, he or she can terminate the policy and
          take the built up cash values or purchase a paid-up
          policy (with a reduced face amount), or purchase a term
          policy of the same face amount, but for a set number of
          years.  The number of years would depend on the
          insured's age and amount of the cash values available
          at the time.
          
               Historically, whole life insurance has provided
          several remarkable tax benefits:
               1.  There is a tax-free build up of the cash
          values attributable to favorable investment experience
          of the insurance company.
               2.  The owner can borrow against the cash values
          at relatively low interest rates and without a tax.
               3.  At time of death, the beneficiary collects the
          proceeds free of income tax.
               4.  By transferring ownership of the policy to
          another, the proceeds can also escape Federal Estate
          Taxes.
          
               Although tax reformers have periodically tried to
          eliminate or reduce these benefits, for most whole life
          contracts, they have been unable to do so.
               This type of policy is very well suited for an
          insurance need which does not diminish with the years,
          such as the payment of the costs of Federal Estate
          Taxes, probate and other administration expenses.
          
          
                         Universal Life Insurance
          
               Universal Life Insurance contracts differ from
          traditional Whole Life policies by separating the
          "protection element," the "expense element" and the
          "cash value element.  The separation of these three
          elements enables the insurance company to build a
          higher degree of flexibility into the contract.  The
          owner can change the face amount or the premium, within
          certain guidelines, to adjust to changes in his or her
          situation.
               A monthly charge for the "protection element" as
          well as the "expense element" are deducted from the
          account balance, allowing the balance of the premium to
          be invested in the "cash value element."
               Therefore, unlike traditional Whole Life policies,
          complete disclosure of the internal charges against the
          "cash value element" of the policy are provided to the
          policyholder in the form of an annual report.
          
          Major Benefits:
          
               1. Policyholder has a versatile and flexible tool
          to accommodate ever changing business, financial and
          family circumstances.
               2. Low term rates and a competitive yield on the
          "cash value element" combined with tax benefits
          reinforced by recent tax reform in many instances make
          the Universal Life contract a viable alternative to
          more conventional investment vehicles.
               3. Future premiums, based on interest rates and
          past premiums, may be increased, decreased, or even
          skipped, without causing the policy to lapse.
               4. Unlike alternative investment vehicles, the
          cash value can be accessed through no-penalty,
          non-taxed loans, withdrawals or partial surrenders.
          Funds that have been borrowed against continue to
          accrue interest, however, usually at a lower rate.  The
          rate charged on these borrowed funds is usually far
          less than the market rate.
               5. The "cash value element" accumulates on a
          tax-free basis, making it a valuable alternative for
          college funding or as a retirement supplement.
               6. Withdrawals from the "cash value element" can
          be TAX-FREE if structured properly.
          
               Tax reform has left life insurance in an enviable
          position.  Tax-free accumulation and a potential
          tax-free payout make life insurance a very strong
          financial tool, and Universal Life provides the owner
          with more flexibility and higher yields than
          traditional Whole Life policies.
          
          
                          Variable Life Insurance
          
               Variable Life Insurance is similar to Whole Life
          in that premium payments are level and there is a
          minimum guaranteed death benefit.  Expense charges are
          deducted from each premium and mortality charges are
          deducted monthly.  The policyholder selects one or more
          "accounts" or "funds" to deposit the account balance
          into.  These can be money market funds, mutual funds,
          bond funds, and others.
               The death benefit and cash value of a Variable
          Life policy increase and decrease based on the
          performance of the funds chosen.  The death benefit
          however, will not drop below the initial guaranteed
          amount.
          
          Major Benefits:
          
               1. Creative approach to protecting one's family or
          business, allowing the policyholder the selection of
          the investment vehicle(s).
               2. Policyholder has the advantage of professional
          management as well as investment diversification which
          can reduce the overall risk.
               3. Policyholder receives an annual report
          disclosing all fees, charges and credits to the
          account.
               4. Cash values may be reallocated to other funds
          up to five times annually, with a minimum of 10% in any
          one fund. This provides a greater degree of control
          over the end result to the policyholder than with Whole
          Life or Universal Life.
               5. Some Variable Life contracts provide an
          exchange option during the first 12-24 months to a
          fixed contract (Whole Life/Universal Life).
               6. Cash value can be accessed through no-penalty,
          non-taxed loans, withdrawals, or partial surrenders. 
          These loans are generally available at rates far below
          the market rate.
               7. Withdrawals from the cash account can be
          TAX-FREE if structured properly.
          
               Tax reform has left life insurance in an enviable
          position.  Tax-Free accumulation and potential tax-free
          income make life insurance a very strong financial
          tool, and Variable Life provides the owner with
          complete discretion over investment diversification, a
          feature not available with Whole Life or Universal Life
          contracts.
          
          
                     Variable Universal Life Insurance
          
               This type of policy contains a combination of
          features found in "variable life" and in "universal
          life" policies.
               As with universal life contracts, the owner of the
          policy can, within certain limits, change the face
          amount and the amount and timing of premiums paid to
          meet his or her situation.
               The prominent feature from the variable life
          contract is the ability for the policy owner to
          determine where the funds will be invested.  Typically,
          he or she can choose among a number of accounts, like:
          
                    Growth stock accounts
                    Bond accounts
                    Balanced accounts
                    Real estate accounts
                    Money market accounts, etc.
          
               The ultimate value of the account, at either death
          or retirement, will depend on the type of investments
          chosen, the general market conditions and the abilities
          of the money managers.
               Once the costs are met for insurance protection
          and a portion of company expenses, the balance of the
          premiums go directly into the selected investment
          options where they compound on a tax-deferred basis.
               As with other permanent life insurance contracts,
          the owner can borrow against the cash values of the
          policy.  The interest rate is generally more favorable
          than from a regular lending institution and need for a
          credit check is not a requirement.  The future death
          benefit will, of course, be reduced by the amount of
          the loan unless it is repaid.
               The Securities and Exchange Commission requires
          this type of policy to be accompanied by a prospectus.
          
          
                       Modified Endowment Contracts
          
               Life insurance policies issued after June 21, 1988
          may be defined as modified endowment contracts (MEC),
          if the cumulative premiums paid during the first seven
          years at any time exceed the total of the "net level
          premiums" for the same period.
               For example, assume that the net level premium for
          a policy is $1,000 per year and the following payments
          are made by two different policy owners:
          
            ͻ
                  (CAN'T EXCEED)   POLICY OWNER "A"     POLICY OWNER "B"  
                  CUMULATIVE NET  ANNUAL CUMULATIVE   ANNUAL CUMULATIVE 
             YEAR LEVEL PREMIUMS PREMIUM   PREMIUMS  PREMIUM   PREMIUMS 
            ͹
              1      $1,000       $1,000   $1,000     $1,000   $1,000   
              2       2,000          500    1,500      1,000    2,000   
              3       3,000        1,000    2,500      1,000    3,000   
              4       4,000        1,500    4,000      1,500    4,500   
              5       5,000        1,000    5,000        500    5,000   
              6       6,000        1,000    6,000      1,000    6,000   
              7       7,000        1,000    7,000      1,000    7,000   
            ͼ
          
          NOTES: In the POLICY OWNER "A" example above, even though the
          premium paid during the fourth year exceeds the annual net level
          premium of $1,000, the cumulative premiums do not exceed four
          times (for the four years) the net level premium, and, therefore,
          this is not a Modified Endowment Contract.
          
               In the POLICY OWNER "B" example above, however, the premiums
          paid in the fourth year cause the cumulative premiums paid to
          exceed the cumulative net level premiums allowed and thus cause
          this contract to become a Modified Endowment Contract.
          
          Taxation of modified endowment contracts:
          
               Withdrawals from "modified endowment contracts" (including
          loans) will be taxed as current income until all of the policy
          earnings have been taxed.  There is also a 10% penalty tax if the
          owner is under age 59 1/2, unless payments are due to disability
          or are annuity type payments.
               Well-designed premium payment schedules can avoid the
          "modified endowment contract" treatment and retain the benefits,
          which are unique to the life insurance contract.
          
          
                       How To Buy Insurance At The Best Prices
          
               Insurance Price Comparison Service is a specialized
          organization focusing on the specific needs of astute consumers
          who take an active role in their insurance planning.  As a self-
          directed consumer, you can save both time and money by taking
          advantage of this independent resource.  
               Whether you are purchasing for the first time, supplementing
          existing coverage, or searching for a lower-cost alternative,
          they will work with you to find insurance coverage that meets
          your particular objectives, avoid buying mistakes, and locate
          safe insurance companies.
               This service gives its customers instant quotes, proposals
          and financial stability ratings from a continually-updated
          database of more than 400 leading insurance companies.
               Most insurance brokers and agents don't want you to know
          about a system like this because they're too busy selling for
          just one or two favorite companies.  Using the Insurance Price 
          Comparison Service puts you first.  It gives you the most
          complete picture of the marketplace whenever you want it, before
          you buy or renew an insurance policy.
               Without having to spend days calling insurance agents who
          are trying to sell you something, you can find out if you are
          eligible to receive the lowest rates being offered by America's
          leading insurance companies, HMO's and Blue Cross & Blue Shield
          plans.  The computerized price tracking service keeps track of
          thousands of high-quality policies (and their ever-changing
          prices) which are offered by America's safest companies.
               Nobody likes to buy insurance.  It's almost always bought
          out of necessity.  But you need the best factual information
          before you buy, and the price tracking service makes it possible
          to keep on top of changing market conditions to an extent never
          before possible.
               Based upon the coverages that you are looking for, their
          computer will electronically scan the marketplace and pinpoint
          those policies that meet or exceed your request.  The qualifying
          companies are then ranked and listed by lowest cost in a
          complete, simple report format.  
               The price comparison report will show insurance company
          names, policy names, latest ratings and premiums for all of the
          qualifying policies.  You'll have complete market knowledge about
          available coverages and prices -- without having wasted any time. 
          You will be equipped to make insurance decisions based upon
          market facts. 
               Price comparisons are available for individual and family
          medical insurance, for term insurance for individuals, for long-
          term care insurance, for medicare supplement insurance, for group
          medical & group dental insurance (especially useful if you have a
          small business and need to insure several employees), and for
          single premium deferred annuity quotes.  Comparisons are not
          available for property or automobile insurance, because these are
          dependent upon neighborhood pricing and there is no national
          calculation of the rates.
               For more information on the service, send a long, stamped
          addressed envelope to Insurance Price Comparison Service, P. O.
          Box 540, Upper Marlboro MD 20772.
          
          
                        How To Buy Life Insurance in One Shot
          
               There are essentially two ways to buy cash value life
          insurance.  The most common method is to pay premiums over a
          period of time.  But there's a different route you may decide to
          take: you may purchase the same amount of life insurance
          protection you are able to receive with level payments by making
          a one-time payment.
               Not surprisingly, this method is often called "single-
          premium life insurance."
               There are several reasons why you may consider single-
          premium life insurance as an alternative to regular premium
          payments. 
               1. You receive instant cash value in the policy.
               2. You may be able to acquire the life insurance coverage at
          a discount.
               3. Single-premium insurance may be used for sophisticated
          estate planning techniques (for example, to maximize wealth for
          beneficiaries with a minimum of estate tax erosion).
               Of course, single-premium life insurance can also provide
          many of the same benefits available to policy holders who make
          regular premium payments on a cash value policy.  For example:
               * The policy guarantees a substantial death benefit for your
          family.
               * The cash value grows without any current tax erosion.
               * There is no income tax when the beneficiaries receive the
          life insurance proceeds.
               * With certain limitations, you may be able to borrow
          against the cash value of the policy.
               Of course, single-premium insurance is not for everyone. 
          Whether or not it makes sense for you may depend upon your
          financial objectives (for example, college savings for a child). 
          In some cases, you may want to invest in a tax-deferred annuity
          instead.  Be sure to get professional guidance in this area.
          
          
                       Borrowing Against Cash Value Insurance
                                 Zero Net Cost Loans
          
               One of the benefits of life insurance policies which build
          cash values is the ability to borrow against these funds.
               The loan is actually made from the general funds of the
          insurance company with the policy cash values used as collateral
          assuring that the loan will be repaid.
               Some polices permit the owner of the policy to borrow
          against his or her policy at an interest rate which is equal to
          the amount which the company is crediting on his or her cash
          values.
               If a policy is being used as a supplemental retirement plan,
          zero net cost loans can make a significant difference in the
          amount that can be borrowed from a policy, creating TAX-FREE
          INCOME during retirement years.
               For example, if at retirement age, a policy has $500,000 of
          cash value and that cash would generate a TAX-FREE annual income
          of $47,000 the chart below illustrates the effect of increasing
          the interest rate charged by the insurance company on the loan. 
          It can have a dramatic effect on either the percentage of income
          lost over the same time period or the number of years the fund
          would last were the payments to stay level.
               In the above example, increasing from a "Zero Net" to a "1%
          Net" cost of borrowing, the effect could be looked at two ways. 
          Either the $47,000 annual income for 20 years would be reduced by
          9% to $42,770 OR... the $47,000 annual income would only last 16
          years.  The ultimate total cost of this "extra spread" would be
          $47,000 X 4 yrs or $188,000.
          
          
           ͻ
              INTEREST      INTEREST    PERCENT LOST    YEARS OF LEVEL   
            CREDITED ON    CHARGED ON   AS LOAN RATE  INCOME AT VARIOUS  
            LOANED FUNDS  LOANED FUNDS    INCREASES   NET INTEREST RATES 
           ͹
                 4.0%          4.0%          0.0%             20         
                 4.0%          4.5%          5.5%             18         
                 4.0%          5.0%          9.0%             16         
                 4.0%          5.5%         13.3%             15         
                 4.0%          6.0%         17.4%             14         
           ͼ
          
          
          NOTE: Interest rates vary from one insurance company to another
          and consideration should be given to these factors.
          
          
                                 Low Interest Loans
          
               Some polices permit the owner of the policy to borrow
          against his or her policy at an interest rate which is only
          slightly higher than the amount which the company is crediting on
          his or her cash values.
               If a policy is being used as a supplemental retirement plan,
          low net cost loans can make a significant difference in the
          amount that can be borrowed from a policy, creating TAX-FREE
          INCOME during retirement years.
               For example, if at retirement age, a policy has $500,000 of
          cash value and that cash would generate a TAX-FREE annual income
          of $44,000, the chart below illustrates the effect of increasing
          the interest rate charged by the insurance company on the loan. 
          It can have a dramatic effect on either the percentage of income
          lost over the same time period or the number of years the fund
          would last were the payments to stay level.
               In the above example, increasing from a ".5% Net" to a "1.5%
          Net" cost of borrowing, the effect could be looked at two ways. 
          Either the $44,000 annual income for 20 years would be reduced by
          9% to $40,040 OR... the $44,000 annual income would only last 16
          years.  The ultimate total cost of this "extra spread" would be
          $44,000 X 4 yrs or $176,000.
          
          
           ͻ
              INTEREST      INTEREST    PERCENT LOST    YEARS OF LEVEL   
            CREDITED ON    CHARGED ON   AS LOAN RATE  INCOME AT VARIOUS  
            LOANED FUNDS  LOANED FUNDS    INCREASES   NET INTEREST RATES 
           ͹
                 4.0%          4.5%          5.5%             18         
                 4.0%          5.0%          9.0%             16         
                 4.0%          5.5%         13.3%             15         
                 4.0%          6.0%         17.4%             14         
           ͼ
          
          
          NOTE: Interest rates vary from one insurance company to another
          and consideration should be given to these factors.
          
          
