Term Life Insurance
Term Life Insurance covers you for a particular period of time, usually 10 to 30 years. If you die after your policy has expired, you receive no benefit. Term life insurance is much less expensive than whole life insurance. The premium that you pay is determined largely by your age, the length of your policy and of course your health. The younger you are and the shorter the coverage you purchase, the lower you will pay for that insurance.
You will pay more if you purchase a longer policy, but you will also be locking in the monthly cost of that life insurance policy for the length of that term. So, if you purchase a 30 year policy, and in year 15 you have a heart attack, your premiums will not rise a cent for the remainder of the policy.
However, you are not locking yourself into the policy. With most policies you can cancel the policy at any time for any reason (for example you found a better rate at aonther life insurance company).
Whole Life Permanent Insurance
Whole life insurance is an insurance policy that covers you for your entire life. Since the life insurance company will have to pay the policy at some point, the premiums are much higher than term life insurance. However, the premiums you pay never increase for your entire life.
The other major difference between whole life and term life insurance policies is that whole life insurance policies develop a cash value as you contribute to the policy. You can take advantage of this cash value by taking low cost loans against the value, or by using that value to pay your premiums.
If you cancel your policy, you will receive some proportion of the cash value of that policy in return.
Other forms of life insurance:
- Universal Life Insurance - sometimes called adjustable life, offers more flexibility than traditional whole life insurance. In general, universal life offers:
- Flexibility in premiums and death benefit.
- An interest rate on the policy's cash value, which, at times, may be higher than the policy's guaranteed interest rate.
- Annual Renewable Term Life Insurance - A type of term insurance offering basic temporary coverage at an economical price. The premium may increase annually as the insured person gets older
- Whole Life - also called ordinary life, is traditional life insurance. In general, the whole life offers:
- Level premiums and death benefit.
- Survivors Life Insurance - A type of whole life insurance that covers two people. Also known as "second-to-die" or "dual life" insurance, usually used as an estate planning tool that pays its death benefit upon the death of the second insured person. The death benefit is generally used to pay estate taxes or other large estate-related costs.
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