We all know the importance of life insurance, but after that it often gets a bit muddled. The first step in taking out a comprehensive life insurance policy involves educating yourself on the different types of life insurance that is available so that you know you are making the best decision possible.
When searching for quality life insurance, you will likely encounter the following types of insurance:
Term Insurance
Term life insurance is life insurance that is available for a certain period of time. The time period for term insurance can range anywhere from 5 years to 30 years, depending on the length of time you desire. However, one the term period has expired, you are left without insurance. Often times, term insurance is ideal for individuals that need life insurance for a certain time frame in their lives. For example, you may choose to take out a term life insurance policy that will last until your children are adults. Term life insurance is often chosen by individuals because it is much less expensive than whole life insurance policies.
Permanent Life Insurance
Permanent life insurance is the most frequently purchased life insurance policy, as the policy lasts until the individual dies, provided he or she continues to pay on the policy. Permanent life insurance policies also have a cash surrender value, which thereby allows the individual to build up cash value as they pay on the policy; the cash value in the permanent life insurance policy grows tax-deferred. In addition, permanent life insurance provides a fixed premium and a fixed death benefit.
The cash value of a permanent life insurance policy may allow you to borrow from the insurance company and use the policy’s cash value as collateral. You may use the cash value to pay premiums, buy more coverage and even exchange the policy into an annuity product. You may also cancel the policy and receive a lump sum of money.
There are two, different types of permanent life insurance:
- Whole Life Insurance - Whole life insurance allows an individual to pay a fixed premium for a fixed death benefit over the life of the policy.
- Variable Life Insurance - Variable life insurance involves allowing the insurance company to invest your premiums; your cash value and death benefit depend on the performance of these investments.
