Types of Life Insurance Policies
There are essentially two types of life insurance policies. These are temporary or short term and permanent. Though there may be many life insurance products available to choose from all are classified by either being term or permanent. Term life insurance is purchased in increments and covers a specific period of the insured person’s life. Permanent life insurance is intended to last from the point of purchase until the insured person dies. Differences exist amongst the types of life insurance policies but the most obvious difference between term and permanent is the length of time the policy is active. Following the time length, term and permanent life insurance policies vary as term life insurance is significantly cheaper than permanent insurance policies.
When choosing between the types of life insurance policies it’s important to assess your needs to decide whether you need term or permanent coverage. Term life insurance coverage is a good choice for those who expect their living situations to change. These policies may be easily converted into permanent policies and are a good choice for families that are just starting out as they can be purchased in time increments of 10, 20 or 30 years. Unlike permanent policies that accrue a cash value, term life insurance policies have no value once the end of the policy expires. Term policies are a good choice for those who are in good health, are young, and basically don’t expect to die soon. These policies will pay out a large benefit should a tragedy strike, however, the majority of term life insurance policies never pay out. One of the best advantages of term life insurance is that the insurer can lock in premium rates.
Permanent life insurance policies cost more than term life insurance and premiums are often more expensive during the earliest years of the contract. As cash builds up with the policy these life insurance policies may earn interest and other earning that will be tax deferred. Coverage extends much longer than with term policies. Most term policies prohibit insurers from renewing their coverage past the age of 75 but permanent life insurance policies remain in force to the age of 95 and sometimes beyond. The insured may borrow against the cash value of his or her permanent life insurance policy as well. This is often accomplished by withdrawing funds or through various loans.
There are many factors to take into consideration when deciding between the types of life insurance policies. Some feel that the added cash value of a permanent life insurance policy is the best way to go; while those who are on a tight budget argue they simply can’t afford a permanent life insurance policy plan. There is no right or wrong insurance policy and choosing between the two types of life insurance policies is often an individual decision based upon a person’s unique and individual situation. As those with growing families are often on a limited budget there is no question that term insurance provides the greatest benefit at an affordable price.
Ensuring that a term insurance policy can be converted into a permanent insurance policy at any time and without any exclusions, regardless of any health conditions you may experience, makes term insurance a great choice for many. Due to the cash value in permanent life insurance policies, however, those who can afford a permanent life insurance policy often prefer the plan over term insurance. Those who purchase term life insurance and continue to renew it, however, may find that they would have ultimately had a greater savings if they purchased permanent life insurance. Term life insurance policies have higher premiums the older the insured person gets. Great care and attention should be spent researching the different types of life insurance policies to ensure that a person selects the best policy for his or her needs.