There are basically two types of Life Insurance. TERM and PERMANENT.
Term Life Coverage
It terminates at some point in the future. This is initially the lowest cost for a life coverage plan. You can purchase level term insurance at rates for a specific amount of time whether it be for 10 years, 15, 20, or even 30 years. This means for that block of time you purchase your plan rates are locked in. The insurance company will not raise the cost of insurance during this period of time. This is a type of life insurance that works well for individuals that need a large amount of coverage for a specific time period and then have no further need for coverage in the future. Say it be for a family until the children graduate from college, to cover a mortgage balance(s), cover student loans, final expenses, and monthly finances for a surviving spouse etc. This is an excellent way to cover your family at a low cost in premiums. If the insured is no longer alive and able to provide an income to support the family needs, this is where life insurance kicks in. For many, this need for life insurance continues long after the initial purchase of a term insurance plan. At that point one can either re-apply for a new term insurance plan or opt for a permanent plan. However, due to one’s current age and health at the time of re-applying for a new plan it may be significantly more money to purchase a new plan.
Permanent Insurance
Just like it sounds. Unlike term insurance, that is only in place for a specified amount of time. A permanent plan that will never expire as long as the needed premiums are paid giving you lifelong protection. There are a few different names for Permanent Insurance plans, Whole Life, Universal Life, and Indexed Universal life. These types of plans initially cost a bit more and typically will have a cash value feature attached with them as well. The amount you pay usually doesn’t change throughout the life of the policy and the cash build up inside the policy is tax deferred. If you were to die unexpectedly would your spouse be able to provide for the family and maintain your current lifestyle for the next 10, 20, or even 30 years without having a life insurance plan benefit?
Whole Life Coverage
The beginning of permanent life insurance and has been around for centuries. A bit more expensive than other types of permanent plans available today. This type of policy comes with a stated death benefit amount and the cash growth build up inside the policy is available to be borrowed from the plan. It also has a guaranteed cash value which typically equals the death benefit at age 100.
Universal Life Coverage
(UL) A type of permanent insurance where the excess of the premiums above the current cost of life insurance (the cost of term insurance today) is credited to the cash account based on a declared rate annually by the carrier of the insurance policy. The growth of the cash value in this account is tax deferred.
Indexed Universal Life
(IUL) A type of permanent insurance that also has a tax deferred cash growth component. This plan gives you the upside potential (to the cap/ceiling) in a rising market for interest credits to the cash build up in your policy as well as giving you a floor. The insurance companies do this by giving you a guarantee of at least a minimum credit of 0.00% interest in a falling market. Thus, locking in any past interest gains you have earned. This type of policy allows the owner of the plan to allocate cash value amounts to either an index account, such as the S&P 500 or a fixed account or both.
When determining what type of life insurance is best suited for your personal needs either it be a permanent plan or term insurance, you may find that a blend of both types may be best for you. Giving you a large amount of coverage using the term insurance that will expire in later years and still have another plan of permanent insurance to last throughout your golden years.