A life insurance policy can help your loved ones pay college tuition, mortgage payments, and even help cover retirement income gaps in the event of your passing.
With term and permanent life insurance, you make premium payments so that in the event of your passing, your loved ones and beneficiaries will receive the death benefit proceeds from the policy.
Determining how much and what kind of insurance to buy is one of the most important financial decisions you’ll make, but because it can also be complicated, many people choose to work with a professional. A qualified insurance professional will conduct a comprehensive financial needs analysis, and walk you through the multitude of questions you need to consider to determine how much and what kind of insurance is right for you, given your budget.
Life insurance is divided into two categories: term and permanent (also
sometimes referred to as whole).
1. Term life insurance
Term life insurance has a specified coverage period (term), but can usually
be renewed or converted into a permanent policy at the end of the term.
Premiums are generally affordable initially, but can increase substantially
2. Whole life insurance
Whole life insurance is a type of permanent insurance that offers life-long
coverage combined with a cash-value savings component. This type of
policy has higher premiums than term life. Premiums remain constant
throughout the policy and a portion is invested by the company, which
becomes the cash value of the policy. Whole life insurance pays a fixed
amount upon death.
3. Universal life insurance
Universal life insurance is another type of permanent insurance policy
that combines term insurance with the ability to earn interest on the cash
value, paying a market rate of return. Cash value grows tax-deferred, and
can be withdrawn or borrowed from the policy. It is more flexible than
whole life insurance as it also allows you to change your premium
payments and death benefit, within limits.
4. Variable life insurance
Variable life insurance is similar to universal life insurance in terms of
flexibility and an investment aspect. However, instead of simply earning
interest on the accumulated cash value, policy owners have more control
over how to invest that cash. The ability to invest in professionally
managed investment options allows for the potential to accumulate cash
value while providing death benefits protection. However, there is greater
risk for loss due to this benefit.
5. Employer-sponsored Coverage
Employers can offer a term policy, permanent coverage or both. Cost-sharing also
varies, as some employers cover the full cost, while some require employees to
pay the full premium (or a portion of it).