Today there are many options when it comes to protecting your interests for your dependents. Sometimes people can make a bad decision simply because they’re not aware of all the options, so here’s a brief description of the different types of life insurance:
“Term Life Insurance” is generally the simplest type. It covers you for a certain period of time. Generally, you pick an amount of insurance, say $250,000, and that is the “life benefit”. Under a term policy, if you die during the policy term, the life benefit you chose is paid to the beneficiary you chose.
Term insurance is a good choice when you need relatively large amounts of insurance, but have a small budget to get it because term insurance is generally the least expensive option. The primary trade-off is the premium you pay for term insurance is “spent money”, and if you outlive your insurance you have nothing to show for the premium payments you made.
“Cash Value Insurance” is different from Term Insurance in a couple of basic ways. Generally speaking, cash value insurance never expires provided you continue to pay the needed premium. And, as the name implies, part of the premium you pay is invested by the insurance company and builds up cash value for you. Depending on your policy terms, you can use this cash value in many ways. You can borrow against it, use it as retirement income, use it for child education, etc.
Cash value insurance is going to cost more in your early years (compared to term insurance) but usually has a steady premium amount. Term insurance costs much more as you age.
As you can see, Cash Value insurance combines both insurance and an investment, so you have something to show for your premium payments when you’re older.
There are several primary types of cash value insurance … Whole Life, Universal Life and Variable Life. Each one has different characteristics and it’s important to understand each option fully when making a decision.