Three Types of Important Life Insurance

Term Insurance

does just what the name implies. Provide protection for a specific term of one or more years. Since protection is only provided for a specific time period, it is considered temporary protection. Death benefits are paid only if you die within the terms of years for which the policy is written. Term insurance can usually be renewed, often without a medical examination. But premiums will be higher each time you renew because you are older. Term insurance provides you with the greatest amount of coverage per premium dollar. Most policies  are “convertible,” which means the policy can be traded for permanent life insurance protection. Premiums for the new policy will be higher than those paid for the term policy.

Cash value life insurance AKA mortgage insurance 

a type of insurance where premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and build up a cash value that may be used in variety of ways. You may borrow against a policy’s cash value by taking out a policy loan. If you don’t pay back the loan and interest on it, the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You can also use your cash value to keep insurance protection for a limited time or buy a reduced amount without having to pay more premiums. You can use the cash value to increase your income in retirement or to help pay for needs such as a child’s tuition without cancelling the policy. However, to build this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be one of several types; whole life, universal life and variable life are all types of cash value insurance.

Whole Life Insurance

The most basic type of permanent insurance is whole life. Whole life policies develop cash values on a tax-deferred basis. This cash value can be used for a variety of purposes, including: Using the policy as collateral and borrowing up to the current cash value. This is useful for funding short-term obligations. If you die before the load is repaid, the amount owed and interest is deducted  from the life insurance proceeds. Payment of premium is required to keep your policy in force. You may authorize the insurance company to borrow from your cash value to pay the premium due. Use the cash value to find a paid up policy at a reduced level of protection if you wish to stop making a premium payments completely. The cash value of the policy is always available if you elect to cancel the policy. You pay taxes on the cash value only if it exceeds the amount of premiums you paid into the policy.