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Types of Life Insurance

There are two main kinds of life insurance – term and permanent, both of which has it’s advantages. The type of insurance that is best fitting for you is dependent on your individual financial circumstances, as well as your budget. The basic differences between the two are discussed below.

Term Life Insurance

As the name implies, term life insurance provides financial protection for a specific period or “term” or time. Term life insurance is the most affordable type of insurance, by allowing the largest coverage amount for the lowest initial premium. If you have a dire need for coverage, but not much budget flexibility, term life insurance may be right for you.

Here’s an analogy to help you better understand how term life insurance operates. Think of it like renting a house vs. purchasing it. Let’s say that you buy a 20-year, $500,000 level-term policy. If you die during the 20 years, your loved ones will receive the $500,000 death benefit. But if you outlive your policy, it will expire and your coverage will end. You essentially “rented” your policy for 20 years and were left with no “equity” when it expired. But that’s ok because it was affordable and it gave you peace of mind at a time when your family needed financial protection.

Permanent Life Insurance

In comparison with term insurance, permanent life insurance offers lifelong protection. As long as you are paying the required premium, your policy will remain available. Permanent life insurance policies may also include a savings component. They provide you with the ability to accumulate cash values on a tax-deferred basis, similar to assets in most retirements and tuition savings accounts. For this context, permanent life insurance is like owning a home. It builds up “equity” you can have access to at any point in time for any purpose. Some may borrow from their policies to make a down payment on a home, or to fund college tuition, or to start up a business venture. It’s important to keep in mind that withdrawing or borrowing money from a policy will reduce its cash value and death benefit if not repaid.

There are many available types of permanent life insurance. Whole Life insurance offers the greatest guarantee. Your premiums will never increase & the death benefit and rate of return on your cash values are guaranteed. Universal Life insurance is typically the most affordable and flexible type of permanent life insurance. It allows you to vary your premium payments, which is applicable to certain premiums and maximums. Variable Life and Variable Universal Life allow you to allocate your premiums among a variety of investment options (e.g., stocks and bonds).

You have the opportunity for a higher cash value and death benefits if your investments perform well, but the opposite can also occur.

It’s essential to remember that there is a price to be paid for additional features and benefits you receive with permanent life insurance. Some permanent policies (e.g., Whole Life) can be significantly more expensive than term insurance when initially purchased.

You can learn more about the specific products that we offer in the Products section of our site.