Life Insurance is an essential part of financial planning. It can provide an investment opportunity for many of life's important goals while protecting the financial security of your loved ones. Life Insurance also offers a way to replace income that would be lost when someone dies.
Term Life Insurance
Term Life insurance provides a death benefit that is payable only if the insured dies during the specified time that the policy is in force. Specified periods of coverage make term insurance ideal for covering specific short term financial needs. You can purchase it one year at a time, or for a certain period, and it tends to have lower premiums than Permanent Life insurance, partly because there is no savings feature or cash value with Term Life insurance.
Permanent Life Insurance
Also known as Cash Value Life, Permanent Life insurance provides lifelong protection as long as you continue to pay premiums as specified in the policy. When your premium is paid, part of it goes into a cash reserve and accumulates tax-deferred.
There are several types of Permanent Life Insurance, to cover a variety of needs:
sometimes called Ordinary Life or Life, Whole Life usually has premiums that are fixed for the life of the policy. Whole Life insurance also builds a savings element (cash value) as a result of the level premium approach to funding the death benefit.
has more flexibility than whole life insurance policies. Within certain limits, you can change the death benefit, the amount of premium and the payment frequency. Unlike Whole Life, this is an interest-driven policy, which normally pays a minimum guaranteed interest of 4% - 4.5%. If the interest rates are continuously low, additional premiums may have to be made to avoid a lapse in coverage.
a type of Whole Life that insures two people and pays a death benefit only after the second person dies. It is generally designed to provide funds to pay estate taxes and is sometimes called Survivorship insurance.
The death benefit and the cash value of this type of policy fluctuate according to the investment performance of funds offered as separate investment accounts. You get to decide where to invest your money based on the choices provided by the issuing company. Many Variable Life insurance policies guarantee that the death benefit will not fall below a specified minimum, but a minimum cash value is not usually guaranteed.
Variable Universal Life
a type of Variable Life insurance which combines the premium and the death benefit flexibility of Universal Life with the investment flexibility and risk of Variable Life insurance.