Life insurance is primarily used for two purposes: to provide a death benefit and to build cash value.
Although conditions and stipulations will vary amongst different types of life insurance contracts, the basic benefit all provide is a death benefit. A life insurance policy protects your loved ones in your death, ensuring they still have a financial resource in your absence.
Some policy types accumulate tax-deferred cash values in addition to a death benefit. Often this cash value can be accessed during lifetime, through policy loans or withdrawals. This is particularly helpful for emergency situations and financing things like a college education or vacation. Again, the conditions and stipulations will depend on the life insurance policy, carrier, and elected features.
Life insurance products are evolving, with new innovations introduced into the marketplace constantly. While there is much variation, life insurance typically falls under two categories: term life and permanent.
Term Life Insurance
Term life, as you would expect from the name, provides protection for a specific timeframe (term). This is usually in ten-year periods. If you die within the period, your insurance company issues payments to your beneficiaries. If however, you survive the period, your coverage ends, although you may have the option to renew for another term, or convert to another policy type.
For those seeking a death benefit, term life insurance may be an appropriate option. Additional features can enhance your term coverage, such as Return of Premium. It may be possible to receive coverage up to 30 times your income, without exams.
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Permanent Life Insurance
Permanent life insurance policies give lifetime protection, provided premiums and applicable charges are paid per the condition of the contract. This broad category life insurance policy type offers flexibility and builds tax-deferred cash value.
There are three main types of Permanent Life insurance:
Whole Life Insurance provides coverage for your entire life, with a guaranteed rate of growth for the cash value component..
In addition to offering lifetime coverage, universal life insurance policies allow for flexible premium payments (as long as enough is paid to keep the contract in force) and the option for a level or increasing death benefit.
Fixed Universal Life
A fixed universal life insurance policy is very similar to a universal life policy, with the difference that the cash value is tied to either current interest rates or fixed to stock market index, such as the Standard & Poors
Cash Value Life Insurance
Cash value life insurance provides you with death benefit protection for your entire life. The premiums contributed into the policy get a guaranteed interest rate, potential dividends, and grow on a tax deferred basis. When you reach retirement you can use the cash value of the policy to supplement your retirement.