The Two Basic Kinds Of Life Insurance
When it comes to life insurance, there are two main types: term and permanent life insurance. Permanent life insurance provides coverage for your whole life, while term life provides coverage for a predetermined amount of time that you select. Whether you're newly married and considering what kind of coverage to purchase or if you have questions about how your current policies work, this blog post will give you everything you need to know.
In it, we'll explain the two different types of term and permanent life insurance in detail so that by the end of reading this post, readers will be able to confidently choose the best type for them.
So let's get started.
What Is Term Life Insurance?
Term life insurance is a type of life insurance that provides coverage for a set amount of time, which you choose when you purchase the policy. The amount of coverage is typically based on your income, and the more coverage you have, the higher your premium will be. If your term policy is set to expire (or already has) and you'd like to continue having coverage, you can do so by purchasing another policy with another company.
How Does Term Life Insurance Work?
If you purchase a term policy, your insurance company will pay its benefits to you when the time comes. This means that the amount of coverage you receive can fluctuate based on your life expectancy and what happens during the time period in which you select.
Let's say that Jerry lives in Omaha, Nebraska and he wants to purchase a 20-year term policy with his family's insurance company. Each year, Jerry will receive a check of $1 million from his insurance company for 20 years of coverage. Now, let's imagine that in year 4 of this policy (Jerry's 57th birthday), Jerry passes away as a result of a car accident. At this point, the insurance company would pay Jerry's beneficiaries $1 million.
In addition to providing coverage for the period of time that you select, term insurance also offers some other benefits. For example, it can help create a tax-free inheritance for your heirs. This means that if you pass away before the term policy expires, your family members will not have to pay taxes on what is left of your estate (assuming they don't use part of it).
What Is Permanent Life Insurance? [discuss]
Permanent life insurance provides coverage for a predetermined amount of time you select when you purchase it. The amount of coverage is typically based on your age and post-retirement earnings. You can purchase this type of coverage during your working years, but it's most commonly purchased when you're retired since premiums are generally affordable.
How Permanent Life Insurance Works
In an ideal world, permanent life insurance would provide customers with as much coverage as they want. However, it's completely unrealistic to expect that it would be able to do so. Instead of worrying about how the terms of your policy may be affected by your life expectancy or the time period in which you are buying coverage, you can simply choose the amount of coverage you need and then sit back and relax knowing that you're protected for as long as needed.
For example, let's say that Jerry purchased a permanent policy with the same insurance company when he was 63 years old. This policy costs $100 per month and provides him with $3 million in coverage. Now, let's imagine that the company offering the policy is called Real Insurance and that their motto is "the amount of coverage you want, guaranteed." This would mean that if Jerry wanted to increase his coverage to $4 million, he could do so without having to worry about how his age or current condition would affect it. He would simply call Real Insurance and ask them to increase his coverage to the desired amount.
What Are the Benefits of Term Life Insurance?
The main benefit of term life insurance is that it provides coverage for a set amount of time, not your whole life. This means that you can choose the time period you want and then just relax knowing that your loved ones are protected. In addition to this, term insurance can be affordable for people with a healthy lifestyle and those who may need coverage because they have a high-risk occupation.
What Are the Benefits of Permanent Life Insurance? [discuss]
The main benefit of permanent life insurance is that it needs to be paid for only once (as opposed to monthly), has no expiration date, and provides a guaranteed rate. Additionally, permanent life insurance tends to be more affordable than term life insurance.
What Is Term Life Insurance Preferred By? [discuss]
Many people choose term life insurance because they prefer the idea of being guaranteed coverage for a set period of time. As discussed above, permanent life insurance can be more affordable for people who are healthy and don't have high-risk occupations. However, some people who are looking for coverage that's not dependent on them having a job may also prefer to get term as opposed to permanent, particularly if they have low income and may require a large amount of coverage at once. Term policies can also help create a tax-free inheritance for those who want it.
What Is Permanent Life Insurance Preferred By? [discuss]
Permanent life insurance tends to be more affordable for people who choose to purchase it than term life insurance. Since it's only paid once, it's less expensive than term life insurance in the long run. However, most people choose permanent because they have high-risk occupations and expect their income to increase over time. Because of this, they find that the price of permanent life insurance is the most affordable for them.
How Much Term Life Insurance Should You Purchase? [discuss]
The majority of people buy what's called a "lump sum" policy. A lump sum policy is a policy that provides your beneficiaries with a large amount of coverage up front and then forgoes providing smaller payments over time. If you purchase a lump sum policy, you have to make sure that you have enough money to pay your premiums so that your beneficiaries will receive as much coverage as possible. However, if you do decide to go with this type of life insurance, the amount of coverage you choose will generally be guaranteed from the moment you purchase the policy.
What Amount of Permanent Life Insurance Should You Purchase? [discuss]
Many people who choose permanent life insurance take out what's known as an "annuity." An annuity is a contract that provides guaranteed income for life.
Conclusion
Remember, the most important thing to consider when choosing life insurance is what you need. Don't do anything until you've thought it through. Good luck!
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