Which Type of Policy Is Best For You?
There are many types of life insurance policies available, but they generally are broken down into two major sections. The first is Term life insurance that consists of several different plans, all lasting a specific period of time as the name indicates. The others fall into the category of Permanent or Whole Life insurance policies.
Term insurance covers a stated period of time and death must occur
within that time period. When the policy expires, there is no coverage
and an individual would need to purchase another policy in order to
continue to have life insurance. Unlike other types of insurance, a term
policy does not generate investments, savings, or cash values. As might
be expected, term insurance is the least expensive type of policy to be
purchased. Several popular types of term policies are:
- Level term insurance that provides a specific policy amount for a predetermined period of time.
- Decreasing term insurance drops in value annually or monthly. This type of policy may be used to cover the decreasing amount of a home mortgage. Premiums generally remain level during the specified period of time but death benefit decreases can vary greatly among insurers.
Permanent or Whole Life policies are what most of us think of when considering buying a life insurance policy. Again, there are several types of policies offered:
- A “limited payment” life policy can be calculated so that premiums will be paid over a specific period of time, such as for 30 years or until the insured reaches age 65. The insured will, however, have paid the policy in full during that time and it will provide coverage even after payments are discontinued.
- An “ordinary” life policy requires the payment of premiums for the lifetime of the insured. These policies can be very flexible in that they can be cashed-in for a lump sum payment, provide retirement income, or enable the insured to purchase a paid-up “extended term insurance policy” for the balance of the insured’s life. This type of policy is available as collateral for loans either with the insurance company or with a local bank. Of course, if the insured dies before the loan has been repaid, repayment would be deducted from the death benefit. The loan benefit of a permanent policy has helped many families meet financial needs under emergency situations.
There are hundreds of variations on life insurance policies. Some offer combinations of whole life and decreasing term. Some insure the entire family, with coverage for children up to a specific age. The children’s portion is generally a “term” policy, while the adult portion would be “permanent”. The children’s, however, can be converted to “permanent” at anytime while they are insured.
The one thing you can be certain of is that there is a policy that can meet the needs of you and your family.