They all have a cash value, as does a comprehensive life insurance policy. Your premiums go to both the cash value and the death benefit. A term life policy is purchased to last for a specific period, such as 1, 5, 10, or sometimes up to 30 years. Coverage expires when that period ends (hence the name) and, therefore, payment is only made if the insured's death occurs during the specified period.
If the insured person survives the original policy period, renewing coverage may be an option, but premiums may be higher. A life insurance policy has two main components: a death benefit and a premium. Term life insurance has both of these components, but permanent or full life insurance policies also have a cash value component. If you're looking for life insurance to cover a mortgage or other debts, you'll do better with term life insurance.
You can choose the term, duration, and amount, and provide more than just the mortgage money to your family. Your family can use a payment for any purpose. They may decide to use the money somewhere else. You can apply for permanent life insurance policy loans, including full life insurance, universal life insurance, and variable life insurance.
Loans are not available with term life insurance policies. This type of permanent life insurance has a premium that stays the same throughout the life of the policy. While premiums may appear higher than the risk of death in the first few years, they can accumulate cash value and are invested in the company's overall investment portfolio. You may be able to borrow funds of the cash value or surrender your policy at face value, if necessary.
Final expense insurance is a type of life insurance intended only to cover end-of-life expenses, such as funeral and burial expenses. Coverage is permanent in the sense that if you continue to pay the premiums, the policy will remain in effect, but these policies do not have a cash value or investment component. Older people often buy final expense coverage without dependent children because it helps protect loved ones who would otherwise have to cover these expenses out of pocket. While premiums for these plans tend to be modest, the death benefit is also very limited; it is not intended to provide years of financial support to its beneficiaries.
Younger, healthier people who want to generate cash value or a significant death benefit for their families are likely to find greater value in a whole-life, universal, or term life policy. These policies last a lifetime and usually include a cash value component, which you can withdraw or use as a loan while you're still alive. Understanding the essential differences between these two main types of insurance can help you make coverage decisions based on your needs and objectives. As you get life insurance options and quotes, you'll likely be looking for a type and amount of coverage that's in line with the amount you want to pay.
Universal life insurance is another option for permanent life insurance, so it provides coverage for life, as long as premiums are paid. No matter the name, it's usually a small whole life insurance policy that's intended to pay only funeral expenses and other final expenses. Before you apply for life insurance, you should analyze your financial situation and determine how much money would be needed to maintain the standard of living of your beneficiaries or meet the needs for which you are purchasing a policy. In addition to covering insurance, Les was news editor and reporter for the Patch and Community Newspaper Company and also covered healthcare, mortgages, credit cards and personal loans for several websites.
As a type of permanent life insurance, full life insurance provides coverage for life and pays your benefit no matter when you die, as long as you continue to pay your bill. Life insurance policies generally have contractual limits, commissions and fees, which may include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and optional benefit charges. However, if the cash value increases to equal the amount of your death benefit when you are of a certain age (usually 100 or 120), your insurer will cancel your policy and pay the amount of coverage. It's wise to reevaluate your life insurance needs every year or after major life events, such as a divorce, marriage, the birth or adoption of a child, or major purchases, such as a home.
However, choosing from the many types of life insurance policies available can be a difficult process. With variable life insurance, you receive the same protection against death as with other types of permanent life insurance, but you have control over how your value is invested in cash. With term life insurance and full life insurance, premiums are usually fixed, meaning you'll pay the same amount every month. Burial or final expense insurance is a type of permanent life insurance that has a small death benefit.