The two main types of life insurance are whole and term. In some instances, whole life coverage may be called permanent life insurance. It includes many subcategories of insurance such as variable, universal and variable universal coverage. Term life insurance is set for a specific amount of time. Group life coverage is a different type of product than the policies that are sold to individuals. This information applies to individual policies.
Term Life Insurance
This is the simplest type of coverage. It only pays if a death occurs during the policy's active term. A term may be anywhere from a single year to 30 years in most cases. If a person dies after the term ends and he or she did not renew the policy, the beneficiary does not receive the death benefit. The two subcategories of term life insurance include decreasing and level term coverage.
With a level term structure, the death benefit is the same for the entire term. When the policy has a decreasing term structure, the benefit amount drops. As a rule, the benefit drops a small amount each year for the entire length of the policy.
Whole Life Insurance
This form of coverage pays a death benefit regardless of when the beneficiary dies. There is no term limit. The policyholder could die one year or 70 years after the policy's implementation, and the beneficiary will still receive the payout. Permanent or whole life comes in the three subcategories mentioned at the beginning of the article. There are additional variants within those subcategories.
With traditional whole life coverage, the benefit amount and premium stay the same for the entire life of the policyholder. For every $1,000 of benefits purchased, the cost of a new policy rises steadily as a person ages. When a person reaches the age of 80, the cost becomes significantly higher. This is why it is helpful to purchase this form of coverage at an early age. The premium for a whole life insurance policy is much higher than the cost of a term policy. However, the higher premium early in the policyholder's life covers claims and the cost of investing to provide future funds.
This structure may result in over-payments, which must be returned to the policyholder if he or she decides to cancel the policy. The cash value is an alternative benefit and not an additional one. There are several choices to consider. The right one depends on a person's family status, budget, income, health, projected future needs and much more. To learn about life insurance policies and which options are best for individual needs, give us a call at 214-275-8372.