Choosing the right form of Life Insurance for your needs is an important financial decision for you and your beneficiaries. However selecting the ideal policy can be tricky to navigate. Use this quick guide as a reference when making this important decision.
Life Insurance may be divided into two primary classes – Term (temporary) and Permanent Life Insurance.
Term Life Insurance provides coverage for a defined number of years paid for by a regular premium. Term Life Insurance is ideal for people who require life insurance only for a specified period of time. For instance - if you want protection for your children until they graduate college at which time they will be self sufficient then a Term Life policy that expires when they turn 22 may be the ideal fit for you.
Permanent Life Insurance
Permanent Life Insurance provides coverage until the death of the insured, with the exception of cancellation if the insured fails to pay the premium. The four primary form of Permanent Life Insurance are Whole Life, Universal Life, Limited-Pay, and Endowment.
Whole Life Insurance
Whole life Insurance provides coverage at a level premium and includes a cash value table that is guaranteed by the insurance company. If you want insurance that never expires and eliminates your investment risk, a Whole Life Insurance plan may make sense for you.
Universal Life Insurance
Universal Life Insurance is a relatively new insurance product which provides the permanent insurance coverage of Whole Life with greater flexibility in premium payments as well as the potential for greater growth of cash values. Universal Life is ideal for individuals who want a life insurance plan that never expires and are comfortable making investment decisions and taking risks.
Limited-Pay is a form of life insurance in which the premiums are paid over a set period of time (such as 10 or 20 years) after which the policy remains in force without the need for the policy owner to pay any additional premiums. These types of policies are ideal for individuals who want insurance for life but do not want to make payments past a certain date – such as when they turn 65 and income may be limited.
Endowments are a form of life insurance where the death benefit can be paid while the insured is still living. Endowments are the most expensive form of insurance because the endowment date (the date the policy pays) is earlier than in other policies. While these have historically been used as tax shelters they will be beneficial to very few people today due to changes in the tax laws.