Life insurance covers your family's needs in the event of your death, from funeral expenses to ongoing financial requirements. There are several types of life insurance that offer different coverage and payment options. We assist you in getting a life insurance policy that fits your needs, but before you decide which works for you best, you should know:
How Life Insurance is Typically Used
-- There are many unexpected expenses.
The Difference Between Term Insurance and Permanent Insurance -- Both offer options that cover specific insurance needs.
Whole Life Insurance -- Permanent insurance with regular payments.
Universal Life Insurance -- Permanent insurance with varied payments.
How Life Insurance Is Typically Used:
For any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes
For funds for a readjustment period, to finance a move, or to provide time for family members to find a job
For ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement
The Difference Between Term Insurance and Permanent Insurance
Term insurance provides coverage for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of the specific period. Others give you the ability to reenter. The premium rates increase at each renewal date or each reentry. Many policies require that evidence of insurability be furnished at reentry for you to qualify for the lowest available rates.
Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age, when the need is often the greatest.
Permanent insurance
is designed to be a lifelong policy and is known by a variety of names. As long as you pay the necessary premiums, the death benefit always will be there. These policies are designed and priced for you to keep over a long period of time.
Most permanent policies, including whole life, universal life, adjustable life, and variable life have a feature known as "cash value" or "cash surrender value." This feature, which is not found in most term insurance policies, provides you with some options:
You can cancel or "surrender" the policy -- in total or part -- and receive the cash value as a lump sum of money. If you surrender your policies in the early years, there may be little or no cash value.
If you stop paying premiums, you can use the cash value to continue your current insurance protection for a specific period of time or to provide a lesser amount of protection to cover you for a longer period.
You may borrow the cash value from the policy. If you do not repay the loan with interest, your beneficiaries will receive a reduced death benefit.
Keep in mind that, with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash value is the amount available when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.
Whole Life
This is the most common type of permanent insurance. The premiums for a whole life policy must be paid as scheduled in the amount indicated in the policy. These premium amounts remain constant over the life of the policy. The death benefit and cash value are guaranteed as stated in the policy if premiums are paid when due and there are no loans or withdrawals outstanding at the insured's death. Quite often dividends may be credited to this type of policy.
Universal Life
This variation of permanent insurance allows you, after your initial premium payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You can also increase or reduce the amount of the death benefit more easily than under a traditional whole life policy. Typically, current interest rates are credited to the cash value in this type of policy.
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