Which Type Of Life Insurance Should I Buy?

Previously, we offered reasons why you should consider buying life insurance. However, you may not know which type of life insurance to purchase.

There are two types of life insurance:

-Temporary
-Permanent

Temporary insurance is also known as Term insurance. Term insurance provides insurance coverage for a specified term of years for a specified premium. It's the most basic policy and least expensive. Term insurance does not build cash value and premium only pays for protection in the event of death.

Term insurance has three components - length of coverage (the term), premium paid (cost of the policy) and the face amount (death benefit). With term life insurance, the policy holder selects a policy with a specific term and pays premiums for the policy. In the event of death, the named beneficiaries of the policy receive payment in the form of the policy's death benefit. If the policy holder should outlive the term of the policy, the beneficiaries receive nothing. Again, term insurance only has one function - to pay a lump sum value to your beneficiaries upon your death.

Permanent life insurance remains in-force until a benefit is paid out. In addition to having the premium and death benefit components, permanent insurance also builds cash value. Permanent life insurance is more expenesive than term due to the added benefit of including a cash account along with the death benefit.

Whole life insurance is a type of permanent life insurance coverage that provides a level premium and a cash value. Whole life policies will pay a death benefit to your named beneficiares as well as offer you a cash value account that grows tax deferred. The premium is level (fixed) and won't increase in your lifetime as long as you continue to pay the specified amount. Your cash value is guaranteed by the insurer and won't be reduced by expense fees. The cash value can be accessed in your lifetime by loaning against the policy; the loans must be paid back or the death benefit to the beneficiaries will decrease by the amount loaned. The cash value is not transferable to your beneficiaries - it is a 'living benefit.' Only the death benefit amount is available to your beneficiares.

Universal life insurance is another form of permanent life insurance coverage that provides greater flexibility with respect to premium payments as well as greater growth potential for the cash value account. Interest is credited to the cash account by the insurance company and premiums paid increase the cash account. The interest credited is usually competitive with market rates.

Convertible term insurance is a term insurance policy that has the ability to be converted to a permanent policy. One of the advantages of a convertible term policy is that the insurer is bound by the conditions of the term insurance policy to renew coverage even if the insured policy holder’s heath condition changes. As long as premium payments are made in a timely manner, the coverage of the policy will remain effective. Additionally, convertible term policies allows a person to start with inexpensive premium payments on a term policy and then convert to a whole life policy to get the benefits of a whole life policy without going through additional health screening. The conversion from term to whole life is at the discretion of the policy holder.

As you can see, life insurance comes in a variety of formats and prices. No matter which type of life insurance you purchase, remember – price is what you pay and value is what you receive. Life insurance may be one of the most valuable assets you ever own. Regardless of the price you pay for your insurance, make sure you receive the best value from which ever type of life insurance you decide to purchase.

If you have any questions about life insurance or would like a free quote, please don’t hesitate to contact us for a free consultation.
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