Learn the best type of life insurance policy is best for you and your family.
There are several variations of life insurance plans, but they generally fall into two categories: Permanent and Term
Term policies function similarly to other types of insurance policies you may carry, like car insurance; you pay money each month (for a certain period of time or term, hence the name), and if something bad happens—in this case, your early death—there’s a benefit paid out. Permanent life insurance, on the other hand, has an investment component and allows policyholders to accumulate a cash value.
When you buy a term policy, all of your premiums go toward securing a death benefit for your beneficiaries.
Term life insurance, unlike permanent life insurance, does not have any cash value and therefore does not have any investment component.5 If you’re still alive when the term ends, the policy simply lapses and you and your beneficiaries don’t see any money. However, you can think of term life insurance as an investment in the sense that you are paying relatively little in premiums in exchange for the peace of mind knowing that in the event of your death, your beneficiaries will receive a relatively large death benefit.
There are many arguments in favor of using permanent life insurance as an investment. However, many of these benefits are not unique to permanent life insurance. You can often get them in other ways without paying the high management expenses and agent commissions that come with permanent life insurance. Here are a few of the most widely advocated benefits of permanent life insurance.
You can keep most policies up to age 120, as long as you pay the premiums. Another touted benefit of permanent life insurance over term life insurance is you do not lose your coverage after a set number of years.
You can borrow against the cash value. If you need money to buy a home or pay for college, you can borrow against the cash value of a permanent life insurance policy. What’s important is, when you borrow money from your permanent insurance policy, it will accrue interest until you repay it, and if you die before repaying the loan, your beneficiaries will receive a smaller death benefit.
There are additional Riders that may be added to a life insurance policy that provide additional coverage for an extra cost.