There are two main types of insurance: term life insurance and permanent insurance. The death benefit for these types differs. Today we will discuss how and why.
These policies will be in effect in 10, 20 or 30-year terms depending on your choices. During this time, you’ll pay a modest premium, and the death benefit will be paid out to the beneficiaries of the policy, and that is it. There is no cash-out value for a term life insurance policy, so it cannot benefit the insured during the policy. These policies are designed to have a steady cost throughout the term and often are cheaper for younger people who are less likely to die, and therefore are more expensive for older applicants.
These policies are often used for families just starting up when insurance needs are going to be greater, to ensure that if the insured passes away, the survivors will have access to the death benefit to continue paying for education, mortgage, etc. Once a term policy ends, all coverage from it is going to end, and you lose your death benefit. You’ll have to decide whether it is in your best interest to take out another term life insurance policy or go with a permanent life insurance policy instead.
Permanent life insurance, as its name implies, a life insurance policy that does not expire. These life insurance policies often have higher premiums, although they will be consistent throughout the length of the policy. This results in higher premiums when younger, but lower premiums when older. The other major distinction with permanent policies is that a portion of your premiums is set aside to accumulate value over time. This set aside value can be saved or leveraged. This cash value can be used in place of paying for the premium later in life, to purchase an annuity, or you can even borrow against the cash value (acting as a form of savings plan). The death benefit will be paid out to the survivors upon the death of the life insured. If the cash savings in the account was used to enhance the policy with an additional term policy, the beneficiaries benefit from that as well.
There are varieties of permanent insurance:
Universal life insurance has more flexibility, adjustable premiums (depending on how investments are going), expenses, mortality costs and other contingencies. This results in the chance that your premiums could go down, or the death benefit could increase; however, there’s a chance that premiums could go up as well.
Variable life insurance isn’t likely to affect the amount beneficiaries will receive from death benefits; however, the cash value of the policy is variable based on investment fund or index performance.
Joint insurance is a common solution for spouses. It can be first-to-die (the policy pays the surviving spouse) or last-to-die (the policy pays the surviving spouse’s beneficiaries).
It’s important to understand the different types of life insurance so that you have the coverage you need and can afford. Term life insurance is best for young people and families, but once you can afford it, permanent insurance gives you more flexibility, with the benefit of cash value. Visit LSM Insurance to learn more.
For more information about life insurance and cash surrender value, visit LSM Insurance website.