Types of Life Insurance
Types of Life Insurance
Term insurance provides protection for a specific period of time and generally pays a benefit only if you die during the period of coverage, and does not accumulate cash value. Common terms are 1, 5, 10, 20, and 30 years. People often purchase term life insurance to cover shorter-term debts like a mortgage or car loan. While term life premiums are usually lower than other life premiums, they increase as you get older.
This type of insurance is usually bought by people in their "family forming" years. But it can be bought by anyone. Just remember age plays a big role in deciding life insurance premium costs.
What happens when the term runs out? Many policies will give you the option to renew your policy when you reach the end of the term. But you'll probably face much higher costs since age is one of key factors used to determine life insurance premiums.
Permanent Insurance provides protection for the span of your life. As long as you pay the premiums, the death benefit will be paid. If you do not plan to keep the policy for long term, you might want to look at other types of insurance.
Why would one need life long insurance? Most people feel they don't need life insurance after the kids have graduated and the mortgage has been paid off, but this is not the case. Your spouse will still have to deal with your final expenses as well as their own living expenses for however long they live without your help. For some that could be as much as 10 or 20 years.
This type of insurance also combines death benefits with the opportunity to build savings tax-deferred. Part of your premium payments are invested by the insurance company on your behalf. This builds up a cash value, which you can use in several different ways. You can take out a loan against the cash value of your policy, use the cash as extra retirement income, or subsidize expenses like college tuition. You may also be able to cancel, or surrender, the policy and receive the cash value as a lump sum. With all permanent life insurance policies, the cash value is different from the policy's face amount. Cash value is the amount available if you surrender a policy, while face amount is the money paid by the insurance company at your death.
Premiums for permanent life insurance are generally higher than term life insurance because of the cash value. However, the younger you are when you buy the policy, the lower your premiums will be.
The Following are types of Permanent Life Insurance
Whole life insurance is in effect for an insured person's entire life. The amount of your premiums generally remains the same over the life of the policy and must be paid periodically for coverage to continue. The insurance company invests part of your premium in its general portfolio to build the cash value of your policy. The most common type of permanent insurance, whole life policies have a fixed guaranteed rate and guaranteed cash values.
Universal life insurance covers the entire life of the insured, as long as the premiums are paid. Premiums are split two ways: part of the premium covers the cost of the policy, and the remainder is invested in the insurance company's general portfolio to earn interest tax-deferred. This type of insurance usually guarantees a minimum interest rate on the balance that is invested. After your first premium payment, you can pay premiums at any time, in any amount that meets your policy's required minimum and maximum payment. You can also reduce or increase the death benefit more easily than with a whole life policy.
Variable life insurance is a type of whole life insurance that incorporates investing. You can invest your premiums in the stock, bond, and money market funds you choose from the insurance company's portfolio. While the cash value of variable life policies is not guaranteed, you have control over how your money is invested. The cash value and death benefit of your policy is determined by how well your investments are doing. This type of life insurance usually has fixed premiums.