Now that you are ready to purchase life insurance, the choice before you is what type of life insurance would best suit your purpose. Life insurance is not a one-size-fits-all product and each one must assess his or her own personal situation to come up with the right coverage and the number of years you would need that coverage. The two broad categories of insurance open to you are permanent or term insurance. Let’s take a look at each one.
Term life insurance
This is the simplest type of life insurance and is often considered to be insurance at its best. You pay a certain amount of premium against a death benefit amount (coverage) that your family would receive in case you die during the tenure of the term insurance policy. Term insurance is temporary. This means you can purchase a policy for a period of term, say, 5, 10, 15, 20 years or even longer. You pay premiums monthly or annually. Annual payments work out to be cheaper than paying premiums every month. There is no savings element involved. If you should outlive the policy, the money you have paid towards premiums is gone. To avoid this, life insurance companies also offer a type of term insurance called return of premium. At the end of the term period, if you are still alive, all the premiums you have paid will be refunded to you, tax free. There are several types of term life policies, such as level term life. Level term assures that your premiums remain level, or the same, during the entire term period. This avoids any unexpected hikes in premiums during your term period that you had not planned for.
Since term life is temporary it is the cheapest insurance you can purchase. For example, a 40-year old male who is in top health, living in California can get term insurance for as little as $160.00.
To summarize, here are the main features of a term insurance policy:
Term life is temporary life insurance and can be purchased for a specific term period. After the term period is over, you would need to renew the policy if you still feel you need to be insured.
Term insurance is the most affordable.
There is no savings element involved.
Term life can be renewable – look for renewable options that do not require you to prove your insurability after the term period is over.
You can purchase term insurance at a cheap rate right now and convert to a permanent life policy at a later date. You would need to look for a term life policy that offers you this conversion option.
Permanent Life Insurance
Permanent insurance (also called whole life insurance) offers lifelong protection. It is more expensive than term insurance because, along with insurance coverage, there is a savings component attached to it. For the first ten years, your permanent life policy will not accrue much interest. Much of the interest will be used to pay off administrative fees. You cash value will only kick off after that.
Another benefit to owning a permanent life policy is that you can borrow from it anytime you need cash. Interest rates are high, but should you need the money, you are able to take a loan against your whole life policy.
To summarize, here are the main features of a permanent life insurance policy:
Permanent life offers life insurance protection for your entire life provided you pay your premiums.
It is more expensive than term insurance, but offers a cash value component not found in term insurance.
You can take out a loan against a permanent life policy.
The premiums remain the same throughout your life.
Permanent or Term Insurance?
Most experts recommend that you purchase a term life policy and invest the difference (between term and permanent) in a separate investment instrument. This is more likely to fetch you more money on interest than a permanent life policy would. Others also suggest that life insurance is not something you need for a life time. Growing families, in particular, who have limited income, prefer term insurance because it is the most affordable and meets their coverage needs most satisfactorily. If you are looking for cheap life insurance from some of the most financially strong life insurance carriers in the industry, request for free insurance quotes online. Comparing multiple term life insurance quotes online is quick and convenient. Some websites also offer professional guidance to help you make an informed decision.
