Life Insurance Differences
Life insurance is commonly purchased by working people to provide for their families in case of their death. The insured policyholder makes periodic premium payments to an insurance provider in exchange for guaranteed benefits paid according to the type and terms of insurance. Some life insurance is intended solely to provide a lump sum payment to surviving beneficiaries upon your untimely death. Others serve as both life insurance and investment products. Four common types are term, whole, endowment life and annuity.
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Term
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Term life insurance is one of the more common and popular types of life insurance. It is typically the most affordable life insurance coverage. Term life is purchased for a stated period. If you die during the term of the policy, the face value of the policy is paid in a lump sum to your designated beneficiaries. The premium costs for term life increase significantly with age, as risk goes up for the insurer. Term life is usually purchased by a provider for a family who wants to leave funds for mortgage or loan repayment or estate taxes, according to Business Dictionary.
Whole
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Whole life insurance is another fairly common life policy. As the name suggests, this coverage exists until the insured's death (assuming no non-payment lapses or cancellation) and is a combination of a life insurance and investment product. The policy provides for a fixed death benefit and accrues cash value as premiums are paid.
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Endowment Life
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Also known as endowment insurance, this type of life insurance policy pays a lump sum benefit on a fixed date or on the death of the insured person, whichever happens first. These policies have higher premiums than conventional whole and term life policies, but they also offer investment opportunities for major purchases like college or a down payment on a home.
Annuity
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Unlike the other three common life insurance products noted, annuity insurance is paid out in fixed intervals for a guaranteed, fixed number of years, or during the lifetime of the insured. It is considered more of a tax-sheltered investment as opposed to a traditional life insurance product. Annuities involve contracted deposits by the annuitant with guaranteed repayment of principal and interest by either the government or insurance agency. The payments to the annuitant are usually tax exempt.
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References
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