Basic Types of Life Insurance
All life insurance policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. There are two basic types of life insurance: term insurance and permanent insurance.
Term insurance generally has lower premiums in the early years, but does not build up cash values. You may combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income.
Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.
You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase.
Term life insurance may be more desirable for people who are starting out, on a budget or have a fixed time period when their objectives call for life insurance.
Permanent insurance (such as universal life, variable universal life and whole life) provides long-term financial protection. These policies include a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.
Whole life plans have level premiums which means they do not increase as you age. These policies are designed and priced for you to keep over a long period of time. If you don’t intend to keep the policy for the long term, it could be the wrong type of insurance for you. Whole life insurance policies develop “cash values”. The cash value is one of the guarantee provisions of the policy. Whole life policies may be more desirable for people who need coverage for their entire life.
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