Life Insurance policies fall into just two basic categories: Term and Permanent. Understanding the differences between these two will help you decide which policy is best for you.
A Permanent Life Insurance policy lasts as long as you pay the premiums — or at least until you’re 100. Whole Life, Universal Life, Variable Life—they're all forms of Permanent Life Insurance.
A distinguishing feature of a Permanent policy is its cash value. Part of the premium you pay covers your Insurance and part goes into a cash fund.
A Term Life Insurance policy provides coverage for a stated period of time—typically 10, 15, 20 or 30 years.
Because the Insurance company's liability is limited and there is no cash value benefit, Term Life Insurance costs significantly less than Permanent Life Insurance.
Most financial planners recommend Term Life Insurance over Permanent. Here's why:
Term is economical. For many men and women, it's the only way they can afford the large amounts of coverage they need to protect the financial security of their family.
Term can be tailored to just the years you need it. You may have a long-term need—until a new baby finishes medical school. Or a short term need—just a few more years until the kids are on their own. You pay premiums only for the time you need protection.
Most Term policies always include a conversion right. This provision lets you turn in your Term policy for a Permanent policy. In this way, you can get coverage during your younger years at far lower premiums, and have the option of converting to Permanent Insurance if your health takes a turn for the worse.
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