Most people buy life insurance to replace income that would be lost if a wage earner passed away. Life insurance proceeds are tax-free, and can play a role in estate planning, cash accumulation, retirement funding, and the transfer of wealth to beneficiaries. There are quite a few types of life insurance on the market today.
The cost of a policy and the features it offers can vary tremendously depending on the type of insurance you choose. Here’s a rundown of the major types of life insurance. There are also differences between insurance companies. For example, not all companies will charge the same price for the same type of policy. So it’s good to shop around.
Term Life Insurance
Term life insurance covers you for a period of time you select (for example, 10 or 20 years) and pays benefits only if you die during the time you’re covered. Term life is often referred to as temporary insurance. These policies do not accumulate cash value, which means if you do not die within the time you’re covered, your estate does not collect any money from the policy when it ends. However, most companies offer conversion privileges to permanent policies, which means you can turn your term life policy into a “permanent” one under some circumstances. With permanent policies, a portion of your premium goes to building cash value with interest.
Benefits of Term Life Policies
Term life insurance typically costs less than permanent insurance. Proceeds are not taxable to your beneficiaries. They supplement employer-sponsored life plans, or older policies that may be inadequate due to inflation. While in effect, you typically can convert to a permanent policy without evidence of insurability (that’s an official statement proving you’re an insurable risk).You can buy a large amount of term insurance to complement your permanent policy.
Permanent Life Insurance
Permanent life insurance provides lifetime protection and lets you build cash value over time. You can use your cash value to take out a loan for emergencies, fund a major purchase, or send children to college.
Benefits of Permanent Life Insurance
With permanent life insurance, your premiums remain constant over your lifetime. Death benefits will be paid when you die. Also, some insurance companies will advance death benefits to pay for nursing care or terminal illness expenses. These features are also available for some term life policies. You can accumulate cash value, tax deferred. Also, you can withdraw or borrow accumulated cash value.
How Much Life Insurance Do You Need?
Your life insurance needs may vary depending on your particular stage in life. This means that an unmarried person who doesn’t own a home may not need as much life insurance than someone who is married with children. As none of us want to leave financial trouble for our loved ones, you should ask yourself what you need to make sure your dependents can continue to live the lifestyle to which they are accustomed.
Is the life insurance company I am considering financially secure? Companies, such as AM Best, and Standard and Poor’s, rate insurance companies on the basis of their financial situations. The more financially sound a life insurance company is, the less chance you will have a problem getting the funds you are entitled to.
Here’s some more great info for you on life insurance from The Morning Blend.