There are different types of life insurance available. Just like everything else, you always have your options. Mainly, there are two categories that most fall into: term and permanent. Term insurance is designed to meet temporary needs. It only provides protection for a specific period of time (which is the “term”) and generally only pays a benefit if you happen to die during the term. This type of coverage often makes more sense when you need coverage at only particular times in your life. For example, while your children are in college or while you’re still paying off your mortgage. In far contrast, permanent insurance provides lifelong protection.
As long as you pay the premiums, the full face amount will be paid. However, this is only as long as you take no loans out on it, have any withdrawals or surrenders during your payment period. This type of insurance is designed to last a lifetime so it accumulates cash value and is priced for you to keep over a long period of time.
One big advantage of having term life insurance is its low initial cost in comparison to permanent life insurance. Term insurance is often a wise choice for people who are in their “family-forming” years, especially if you’re on a tight budget. This type of insurance allows people to buy high levels of insurance when it’s most needed. So what happens when you come to the end of your term and you realize you still have the need for life insurance? Well, there is both good and bad news about this.
The good news is that there are many policies that will give you the option to renew at the end of your term. The bad news about this is that you’ll probably face higher costs since the age factors into determining life insurance premiums. To renew your policy you may find that they require you to take another health exam and answer more questions about your lifestyle. If you are still in a fine, healthy condition you could probably re-qualify with a reasonable rate. However, if your health has deteriorated you may find that the continuous increase of premiums is too expensive to renew your policy and sometimes you may not even re-qualify.
Contrary to what many people think, life insurance is still needed long after the kids have graduated from college. Once again, in the case of you dying unexpectedly, your spouse will more than likely outlive you by many, many years. They will have their daily living expenses to consider carefully then, if you didn’t have life insurance. Permanent life insurance has what they call cash value or cash surrender value. It is often referred to as cash value insurance because with these types of policies, the cash value builds up over time along with providing death benefits to your beneficiaries.
Cash values can be used in the future for any purpose you desire. You can actually borrow cash value off of your policy to make a down payment on a house or help to pay off your children’s college debts. When you borrow this money from a permanent insurance policy you’re using the policies cash value as collateral and generally the borrowing rates are relatively low. Ultimately you must repay any loan you take out; otherwise your beneficiaries won’t receive the full amount you had planned on initially.