Types of Life Insurance
There are two basic types of life insurance. Permanent or whole life insurance and term life insurance are the two predominant forms of coverage.
Following are some of the points you should know before getting a life insurance quote from providers.
There are three forms of permanent life insurance. Depending upon the carrier, each form of permanent life insurance may have certain variations. The most popular form of permanent life insurance is whole life insurance. Many policy owners enjoy the benefits and stability of a whole life policy. Whole life insurance is as an equity investment and is central to many individual’s investment portfolios.
Whole life insurance is the cornerstone product of most life insurance companies. More than 50% of active life insurance provides whole life coverage. Whole life insurance pays a guaranteed death benefit to designated beneficiaries whenever the insured dies. Unlike term insurance policy owners, whole life insurance policy holders build cash value as premiums are paid.
The cash value of a whole life insurance policy can be borrowed by the policy owner. The owner must then pay interest on the loan until the loan is repaid. If the insured dies before the cash value loan is repaid, the amount of the cash value loan would be deducted from the death benefit paid to beneficiaries.
Many whole life insurance policy owners use this cash value to meet emergency needs or to pay education. There are several significant tax advantages to this form of equity building.
Whole life insurance policies also earn dividends. Often these dividends can be used to offset premium costs. Otherwise, they can be added to the policy’s cash value or paid to the policy owner on an annual basis.
The other forms of permanent life insurance are universal life and variable life insurance. These variations of whole life are not offered by all life insurance companies. Persons interested in these forms of coverage should discuss their attributes with the insurance agent.
Term Life Insurance is the second major form of life insurance. Term life coverage provides a guaranteed death benefit in the event death occurs during the life of the policy. Term life does not accrue any cash value and is not an equity investment. As a result, premiums are significantly lower for term life insurance than for permanent life insurance.
The two basic forms of term life insurance are Level Term and Decreasing Term. Level Term provides a fixed death benefit during the life of the policy. Decreasing term produces a death benefit that reduces each year. Approximately 40 % of all life insurance is term life insurance.
The death benefit of term life insurance also has tax advantages. Term life insurance is generally an interim form of life insurance and often seems as a bridge until a permanent life insurance policies is acquired.
For many Americans, permanent life insurance is a comforting investment in times of economic unrest. During the Great depression, whole life insurance policies continued to pay death benefits, build cash value and provide dividends to their policy holders. As a result, life insurance companies are viewed as responsible finical managers by most clients
