Types of Life Insurance

Term, Whole/Permanent and Survivorship Life Insurance

There are different types of life insurance coverage to accommodate a variety of needs and lifestyles. The most popular options are term, whole/permanent or survivorship life insurance.

In many cases, term life insurance is the least expensive and easiest to understand. This is due to the fact that most needs for life insurance actually decrease with time. At the point when most term life policies are set to expire, mortgages have been paid off, children's college tuitions are paid, and children are no longer financially dependent.

Permanent life insurance provides a version of a savings account combined with life insurance. Premiums for this type of policy tend to be higher since the policy can develop a 'cash value' over an extended period of time. This feature shouldn't be used as an alternative to a savings account. Financially speaking, it makes more sense to use it if you need to liquidate the policy. This way you actually accumulate some appreciation value. The fact that a policy can develop a liquid value means it is higher-risk to the insurer and your premiums will cost more.

Whole Life/Permanent Insurance

Whole Life Insurance is also called Permanent Life Insurance, and is bought for a term lasting the entirety of your life. This type of policy will be more expensive than a term life policy, but the premiums do not increase after you make your initial purchase. This feature is very appealing to many who want to prepare for the future and cap their costs before prices rise.

As a matter of fact, if you compare premiums between existing types of coverage, the premium could actually cost less. If you had a lapse between insurance coverages and your risk and age increased, you may have to pay more than the cost of your whole life policy. The older you get, the more costly your insurance premiums.

Permanent life insurance is more costly than term life insurance, but it lasts for life. If you don't think that you could continue to make payments for such a lengthy period, you should consider a different type of insurance.

As long as premiums are paid, it remains in force. Premiums are usually based on your age at the time of purchase and generally remain level. In addition to providing a death benefit, premiums are also invested to produce returns by adding a cash value to your policy. You can even tap into this cash value by taking out a loan, withdrawal or surrendering your policy.

Why are the premiums more costly? A portion of your monthly payment pays for the actual life insurance, which is comparable to the amount you'd pay for term life insurance, and the remainder of the payment is applied to the savings component. There is always miscellaneous management fees included in the total cost of the premium. This means that you are actually paying for your own savings; whatever is above the base insurance cost contributes to your savings value. The insurers wouldn't do this, though, if it weren't profitable to them. What you are doing in effect, is loaning them money to use until they must pay out your policy. It may be better to take the difference between the premiums and put it towards another investment vehicle. Just be sure to choose wisely and what works best for you.

The cash value that builds up in your permanent life insurance was originally designed to continue to pay your premiums when you age and premiums become really expensive. This was attractive to many because it assured that you didn't have to pay the increases in premiums at a point in life where heavy monthly payments would be financially straining. This has shifted to an emphasis on building savings to enable you to access cash if needed. Using the 'savings' for anything other than life insurance payments could alter your tax status or make you liable for taxable income. Check the IRS guidelines on the specific policy before buying it. You don't want to pay taxes on a 'faux' savings account should you need to cash out early.

Remember that if something seems too good to be true, it probably is! The insurers have to make a profit on these policies, and those who sell them are greatly motivated to do so. Any time you end a policy early, the insurance firms and agents will profit.

Term Life Insurance

Term life insurance is generally your most cost effective option if you need basic life insurance for a specific number of years. Usually the time periods vary between 10, 20 and 30 years. You are insuring your life for a 'term' and if you die within that term, the policy is paid out. If you do not die during that term, the policy expires. There are some new types of policies that offer a certain amount of money back, but paying extra for this could be a waste of money.

If you are looking for a long-term tax shelter, Universal Life Insurance might be a better choice for you. Whole Life Insurance is a quality choice for those who are looking to save. You need to weigh your options, goals and financial ability when deciding the type of policy to go with. Either way, you will pay administration charges on your life insurance premium cost.

Term life insurance could also be a good option for those who in hazardous occupations or have other circumstances that could threaten a normal lifespan. In other words, if there is a larger risk that you would die earlier than expected due to circumstances in your life.

Universal Life Insurance

A universal life insurance policy is geared towards people who want tax-sheltered investments besides their 401(k) or RRSP. Since many do not take advantage of our maximum contributions in these retirement vehicles, universal life insurance coverage is not the most popular choice.

However, if you are a stupendous saver and you've maximized your tax-sheltered retirement savings, a universal life insurance policy might be a wise selection. You will also be responsible for paying administration fees. Because this type of policy has some combined finance and tax benefits, you should seek counsel from an independent financial advisor. This way, you can get sound financial advice from an unbiased source.

Types of Life Insurance

Term, Whole/Permanent and Survivorship Life Insurance

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