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Determine Your Options And The Types Of Policies Available
Author David Schneider | May 23,2007
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Many of us look at understanding life insurance as somewhat like figuring out how the engine in the family car works. Obviously, it would be a good idea to gain this knowledge, because a situation might arise in which it would be extremely useful. Yet most of us, for one reason or perhaps many combined, rarely get around to actually educating ourselves. When we do, it is often regrettably too late for us to enjoy maximum benefits from the knowledge. The obvious difference between the two examples is that it's only a possibility that a time will come when you need to know how to fix your car's engine, whereas your eventual need to deal with life insurance is an absolute certainty.
Perhaps the best way to start when learning about life insurance is to become familiar with the various options and types of policies that are available to you. Most people are aware that life insurance comes in two major varieties, permanent and term, and yet many people would be hard pressed to explain exactly how these two types of coverage differ. So let's take a look at each of them separately.
Permanent life insurance is a form of coverage that you purchase to provide death benefit protection for the entirety of your lifetime, no matter how many years that may entail. During this time, your policy will accumulate to an ever-increasing cash value, which you have the option of utilizing in a range of ways. Many people elect not to touch this money and simply allow it to achieve maximum growth for anticipated future expenses. Obviously, you need a certain amount of financial stability and security for such an approach. Other permanent life insurance policyholders decide it's best to borrow against the cash value by taking out a loan to deal with immediate needs. In either event, people can find a permanent policy invaluable.
Universal life insurance is a subset of permanent coverage. This type also builds cash value that you can invest in a variety of separate accounts at your discretion. The premiums can vary quite a bit under this type of arrangement, from very low figures in a typical month, all the way up to maximum premiums determined by the IRS. This flexibility is quite different to another permanent subset known as whole life insurance, which mandates that you must pay fixed premium payments on a regular basis. The cash value of a whole life policy goes into an interest-bearing account, which you can borrow against if needed.
Term life insurance, by contrast, is designed to offer death benefit protection only for the duration of a predetermined period. This could be anywhere from five to twenty years, depending on a wide range of variables. There are two huge differences that separate term coverage from permanent coverage: first, under the structure of a term insurance, the death benefit is paid to your beneficiary only if you should pass away during the term period of the policy. Second, term policies generally do not build up any cash values, so there is nothing to borrow against, nor a growing fund to allocate for future use. These distinctions are absolutely critical to understand before you decide which type of policy to buy. |
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