Life insurance is a contract between the policy owner and the insurer, in which the insurer agrees to pay an amount of money in the event of the owner's death. The owner pays premiums, at agreed upon intervals, in exchange for this insurance. The policy owner assigns a beneficiary to the policy, who is the person to receive the benefits upon the owner's death. There are different types of life insurance, including: permanent, term, and variable policies. These are each designed with different needs in mind. You may be interested in estate planning, temporary protection, cash accumulation, or just peace of mind.
Permanent Life Insurance is for the life of the insured. It accrues cash over the length of your life, as long as you continue paying the premiums. These premiums are higher than for term insurance, because they must pay out. These products accumulate a cash value against which the policyholder can borrow, and accumulated cash will be paid to the beneficiary upon the owner's death. It is possible for this insurance to be paid out early in the event of a critical illness, as long as the contract is not broken. Another advantage to permanent life insurance, rather than beginning with term insurance and switching over later in life to a permanent policy, is that you will not have to consider being rejected if you develop a serious illness before the change in policies, which could affect your acceptance.
Term insurance gives you coverage for a set amount of time (usually in multiples of 5 years), but the value of the policy is only paid out if death occurs during the time specified. In addition, the policy?s value does not increase. Because term life insurance policies are a pure death benefit, they are generally 8 to 10 times less expensive than a permanent life policy for the same coverage.
Variable Universal Life Insurance, usually between the price of permanent and term, combines a term life insurance policy with variable investment options. The policy owner decides in which accounts to invest, which is an attractive feature. There is more financial risk with this type of policy due to its involvement in markets; however, there is the potential for greater returns at the end of the term. This type of policy also requires more attention to planning.