Life Insurance Help
Life insurance protects your family from your debts after you die. The death benefit may also be used to pay for college tuition for your children or provide an income for your spouse. Before buying life insurance, you should understand how life insurance policies work and how they impact your life and the life of your family.
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Types
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There are two types of life insurance: term life insurance and permanent life insurance. Term life insurance is temporary life insurance that may last up to 30 years. Permanent life insurance provides death benefit coverage that may last for your entire life. Most permanent policies are designed to offer death benefits out to your age 100 or 120.
Significance
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The significance of term life insurance is that it provides a very low cost (premium) in relation to the death benefit you receive. The significance of permanent life insurance is that the policy provides both death benefits and a cash reserve, called a cash value. This cash value is a savings that may be used at any time during your life.
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Benefit
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The benefit of term life insurance is that it's often very affordable. You can often purchase more insurance than you need without putting yourself into financial hardship. Term insurance policies are also relatively uncomplicated since you are simply receiving a death benefit in exchange for a premium payment. The benefit of permanent life insurance is that it provides tax-free cash value savings. The cash value builds up inside of the policy tax-free and can be withdrawn up to your basis (the total amount of premiums you've paid) or borrowed against tax-free.
Disadvantage
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The disadvantage to term life insurance is that the policy is short-term. Even with a 30-year policy, the contract will end. Additionally, when it does end, it may be expensive to renew if you even qualify for a renewal. The disadvantage to permanent life insurance is the cost. Premiums are five to 10 times or more when compared to a term policy with the same death benefit.
Considerations
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When considering what kind of policy you should buy, take into consideration the purpose for purchasing life insurance. If you only need short-term coverage, term life insurance is likely an ideal option. If you need long-term coverage, and also want a cash value savings, permanent life insurance will be the most suitable.
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