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Life Insurance Information
There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent insurance.
Term insurance is designed to meet temporary needs. It provides protection for a specific period of time (the "term") and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.
In contrast, permanent insurance provides lifelong protection. As long as you pay the premiums and no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time.
What Is Life Insurance?
Life insurance is a contract between an individual and a life insurance company. The policy owner is responsible for paying premiums and designating beneficiaries. When the insured person dies, the beneficiaries receive a set amount of money known as the death benefit as long as the policy is in force.
How Does Life Insurance Work?
With term life insurance, beneficiaries receive the death benefit if the premiums are paid on time and the term hasn't ended. If the insured person outlives the policy, no benefits are paid.
With permanent life insurance, the insured person can't outlive the policy. So long as the premiums are paid as agreed, beneficiaries receive the death benefit when the insured person dies.
Permanent life insurance, like whole life and universal life, includes a savings component in addition to the death benefit. According to the life insurance policy contract, part of the premium payments is deposited into an account that accrues interest. The policy owner may be able to eventually use the policy's cash value to secure a loan. They may also be able to surrender a permanent life insurance policy in exchange for a lump-sum payment of the policy's cash value minus surrender fees. If a permanent life insurance policyholder decides to cash out their policy, the insurance policy terminates and beneficiaries will no longer receive a death benefit when the insured person dies.
It's impossible to say which type of life insurance is better because the kind of coverage that's right for you depends on your unique circumstances and financial goals.
But remember, the best way to figure out the amount and type of life insurance that makes sense for your particular situation is to meet with a qualified and licensed life insurance professional.