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Life Insurance Product Options

There are several types of life insurance products available, divided into two main categories, Term Life Insurance and Permanent Life insurance:

Term Life Insurance
Term life insurance is bare-bones insurance coverage. You pay a premium every year and if you die while the policy is still outstanding, the insurer pays a death benefit (coverage amount) to policy's beneficiary, usually a family member or loved one you've chosen.

It's called term insurance because the coverage lasts for a specific term. That term can be anywhere from one year to 20 years, and is typically renewable. So, for example, you could buy what's known as annual renewable term, pay the annual premium and renew each year at a price that would go up as you age.

Or, you could lock in the price for up to 20 years by buying what's known as a level-premium policy. The premium on the level-premium policy would start higher than with annual renewable, but it would remain the same for the policy's full term, whether five, 10 or 20 years.

PROS:

  • Lowest Price
  • Easiest to shop and compare apples to apples
  • Guaranteed level premium for up to 20 years
  • Can be purchased instantly online without a medical exam if you don't mind paying a little extra

CONS:

  • No cash value accumulated
  • Premiums increase with age after initial guarantee period

Permanent Life Insurance

Permanent life insurance provides coverage for an individual's whole life, rather than a specified term. A savings component, called a cash value or loan value, builds over time and can be used for wealth accumulation.

PROS:

  • Annual premium is fixed for life
  • Contains a savings portion which can be borrowed against or withdrawn in the future
  • Can be used as a substitution for forced savings
  • Savings portion grows tax free

CONS:

  • More expensive than term life insurance
  • More difficult to compare apples to apples when shopping for a policy

There are several types of permanet life insurance:

  1. Whole life insurance
  2. Variable life insurance
  3. Universal life insurance


Whole Life Insurance

Whole life insurance is also called ordinary or straight life insurance. With whole life insurance, you pay a level premium over the life of the policy. The amount of your death benefit is also fixed.

Similar to other forms of permanent life insurance, whole life insurance builds up cash value in a tax-deferred accumulation fund. You can withdraw or borrow against the cash value. Unlike universal or variable life insurance, the cash value of a whole life policy is not used as a reserve to pay premium.

Variable Life Insurance
A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder’s discretion

The two main differences between variable and universal life insurance are: 1) Variable life does not have flexible premiums, and 2) Variable life allows you to invest in riskier investments such as stocks, bonds, and mutual funds. (Universal life insurance is generally restricted to safe investments that earn a lower rate of return.)

Universal Life Insurance
A hybrid insurance product that combines the protection of a conventional term insurance policy with cash values and investment yields. Unlike traditional whole life policies, universal life divides death protection and cash value accumulations into separate components



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