There are just certain basics about life insurance that you should know but may be unsure of what to ask.
It’s just a plain fact. Most of us don’t like to face up to the subject of our own deaths, but death is an integral part of a human life. In order to protect our families, we need to give at least some thought to the subject of where life insurance fits into our legacy.
The more you understand about life insurance, the better you’ll be prepared. We’ll take you through the short course. Let’s call it Life Insurance 101.
Understanding the Different Types of Life Insurance
The type of life insurance that’s best for you will depend on a variety of factors including your current age and health condition. The two major types of life insurance policies that you need to concern yourself with are term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance provides coverage over a specified period of time. It’s usually less expensive than permanent life insurance, and policy periods are divided up into easy slices such as one, ten or twenty years. If you die within those time periods? The death benefit will be paid to your beneficiaries. If you should reach the end of the time period and you are still alive? The protection offered by the policies will end – unless you renew the policy. One main factor to consider is that a “cash value option” is not available with term life insurance policies.
Should you only need temporary life insurance – or if you need a large dollar amount of coverage but can’t afford to spend a lot in premiums, you’ll benefit from this type of policy.
Permanent Life Insurance
Permanent life insurance is, as the name suggests, designed to provide coverage for the entirety of your life. In some cases, depending on the details of the policy, coverage could be limited up to a specific age.
When you reach that age? The cash value of the policy will be paid to you as you’re building a cash value with permanent life insurance. You can, if you need to, withdraw or borrow against the policy to meet expenses such as educational needs or home improvement projects. Permanent life insurance also has an additional value in that it allows you to build up cash value, value that is tax-deferred, but this benefit only applies while the policy is in force.
Within the available permanent life insurance plans are what’s known as “whole life” and “universal life” divisions. The whole life policy will, under certain circumstances, pay dividends. Another advantage? Premiums don’t fluctuate over the term of the policy.
A universal life insurance plan allows the owner of the policy to change the level of the premium payments, and this flexibility comes in handy in the event of life-changing challenges like the loss of a job or unforeseen expenses popping up.
Permanent life insurance is ideal for individuals interested in long-term insurance – but favor the idea of building up cash value with their policy. Keep in mind that permanent life insurance is more expensive than term insurance, and also note that if you take out a loan against these policies, the death benefit of the policy will be reduced.
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