Life Insurance Policies: Term vs Permanent

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When it comes to purchasing life insurance, deciding which kind of policy to buy can be a challenge. But by learning about the characteristics of available life insurance policies and working together with an experienced life insurance agent, you'll be able to choose the right policy to protect your loved ones.

Term Life Insurance

As the name suggests, term life insurance provides coverage for a certain period of time, as specified in your policy. This means that a death benefit will only be paid out if you die within your policy's term. Because of this central characteristic, term life insurance policies tend to be much cheaper than permanent life insurance policies--making it a very appealing option to young adults or families who can't spend a lot on life insurance.

Though term life insurance comes in two forms--level term (pays the same death benefit no matter when you die during the term) and decreasing term (the death benefit decreases throughout the duration of the policy)--level term policies are by far the most popular.

According to the Insurance Information Institute (I.I.I.) common types of level term policies are:

Annual (least popular)
5 year
10 year
15 year
20 year (most popular)
25 year
30 year

Many term life insurance policies are renewable, which means that you may be able to reinstate your policy after the term ends, although reinstatement may be contingent on passing a medical exam and will likely involve an increased premium. Additionally, the I.I.I. reports that most insurers will not renew a policy ending after 80 years of age.

Premiums for term life insurance are typically based on your age and health status at the time the policy is written. Some insurers guarantee your premiums to stay the same throughout the length of the term, but others may not make that guarantee (and increase your premiums throughout the term)--so be sure you're aware of premium provisions before signing a policy.

Life insurance tip: Buying life insurance when you're young and healthy will help you secure low premiums. Not a spring chicken? Take care of your health--stop smoking and exercise regularly to get the lowest insurance premium.

Permanent Life Insurance

Unlike term life insurance, permanent life insurance pays a death benefit whether you die they day after you sign the policy or 50 years later. Permanent life insurance policies are also appealing because of their ability to grow tax-deferred over a certain length of time--which can result in a large chunk of change. This cash value can be used in a variety of ways, providing additional benefits to policyholders and their families.

Because of these characteristics, permanent life insurance policies tend to be more expensive than term policies, which may not be conducive for young adults or families with income limitations.

Life insurance tip: Some term life policies can be converted to permanent life insurance policies, so if you're interested in a permanent policy but can't afford the premiums, ask your agent about term policies with this feature.

Permanent life insurance policyholders also have a wide array of policy options to choose from. The four common types of permanent life insurance are whole, universal, variable and variable-universal.

Whole life policies are the most common form of permanent life insurance and offer both a death benefit and the additional benefit of a savings account. If you buy a whole life policy, you agree to pay a certain amount for a predetermined death benefit. And, unlike a term life policy, whole life policies have the potential to earn annual dividends--which will earn interest if you let them accrue.

Universal life policies offer more flexibility, allowing you to vary how much you pay and when you make premium payments (with some limitations, of course). You may also be able to obtain a larger death benefit, provided you pass a medical exam, and like whole life policies, your universal policy may earn cash value over time.

Variable life policies incorporate a death benefit with a savings account that you can invest in stocks, bonds or mutual funds. While this may increase the value of your policy, it's important to remember that if your investments don't perform well, your death benefit will decrease. To avoid this, the I.I.I. says you can ask about variable policies that guarantee that the death benefit will not fall below a certain amount.

Variable-universal policies combine the features of variable and universal life policies, meaning that you have the investment options of a variable policy and the flexibility of premium payments of a universal policy.

Which Policy is Right for You?

Now that you have some idea of what policy options appeal to you, take the time to speak with a licensed life insurance professional that can answer questions and help you come closer to your life insurance decision. Because when you have all the facts, it makes finding affordable life insurance that much easier!

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Life Insurance Policies: Term vs Permanent

Image : http://www.flickr.com

When it comes to purchasing life insurance, deciding which kind of policy to buy can be a challenge. But by learning about the characteristics of available life insurance policies and working together with an experienced life insurance agent, you'll be able to choose the right policy to protect your loved ones.

Term Life Insurance

As the name suggests, term life insurance provides coverage for a certain period of time, as specified in your policy. This means that a death benefit will only be paid out if you die within your policy's term. Because of this central characteristic, term life insurance policies tend to be much cheaper than permanent life insurance policies--making it a very appealing option to young adults or families who can't spend a lot on life insurance.

Though term life insurance comes in two forms--level term (pays the same death benefit no matter when you die during the term) and decreasing term (the death benefit decreases throughout the duration of the policy)--level term policies are by far the most popular.

According to the Insurance Information Institute (I.I.I.) common types of level term policies are:

Annual (least popular)
5 year
10 year
15 year
20 year (most popular)
25 year
30 year

Many term life insurance policies are renewable, which means that you may be able to reinstate your policy after the term ends, although reinstatement may be contingent on passing a medical exam and will likely involve an increased premium. Additionally, the I.I.I. reports that most insurers will not renew a policy ending after 80 years of age.

Premiums for term life insurance are typically based on your age and health status at the time the policy is written. Some insurers guarantee your premiums to stay the same throughout the length of the term, but others may not make that guarantee (and increase your premiums throughout the term)--so be sure you're aware of premium provisions before signing a policy.

Life insurance tip: Buying life insurance when you're young and healthy will help you secure low premiums. Not a spring chicken? Take care of your health--stop smoking and exercise regularly to get the lowest insurance premium.

Permanent Life Insurance

Unlike term life insurance, permanent life insurance pays a death benefit whether you die they day after you sign the policy or 50 years later. Permanent life insurance policies are also appealing because of their ability to grow tax-deferred over a certain length of time--which can result in a large chunk of change. This cash value can be used in a variety of ways, providing additional benefits to policyholders and their families.

Because of these characteristics, permanent life insurance policies tend to be more expensive than term policies, which may not be conducive for young adults or families with income limitations.

Life insurance tip: Some term life policies can be converted to permanent life insurance policies, so if you're interested in a permanent policy but can't afford the premiums, ask your agent about term policies with this feature.

Permanent life insurance policyholders also have a wide array of policy options to choose from. The four common types of permanent life insurance are whole, universal, variable and variable-universal.

Whole life policies are the most common form of permanent life insurance and offer both a death benefit and the additional benefit of a savings account. If you buy a whole life policy, you agree to pay a certain amount for a predetermined death benefit. And, unlike a term life policy, whole life policies have the potential to earn annual dividends--which will earn interest if you let them accrue.

Universal life policies offer more flexibility, allowing you to vary how much you pay and when you make premium payments (with some limitations, of course). You may also be able to obtain a larger death benefit, provided you pass a medical exam, and like whole life policies, your universal policy may earn cash value over time.

Variable life policies incorporate a death benefit with a savings account that you can invest in stocks, bonds or mutual funds. While this may increase the value of your policy, it's important to remember that if your investments don't perform well, your death benefit will decrease. To avoid this, the I.I.I. says you can ask about variable policies that guarantee that the death benefit will not fall below a certain amount.

Variable-universal policies combine the features of variable and universal life policies, meaning that you have the investment options of a variable policy and the flexibility of premium payments of a universal policy.

Which Policy is Right for You?

Now that you have some idea of what policy options appeal to you, take the time to speak with a licensed life insurance professional that can answer questions and help you come closer to your life insurance decision. Because when you have all the facts, it makes finding affordable life insurance that much easier!

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Life Assurance Policies

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Definition: Life assurance can provide you with one of two main benefits: it can either provide your successors with money when you die or it can be used as a money saving plan to provide you with a lump sum (or income) on a fixed date. In recent years, however, both types of scheme have become more flexible and many policies allow you to incorporate features of the other. This can have great advantages but the result is that some of the definitions appear somewhat contradictory. There are three basic types of life assurance: whole life policies, term policies and endowment policies.

Whole life policies are designed to pay out on your death. In its most straightforward form, the scheme works as follows: you pay a premium every year and, when you die, your beneficiaries receive the money. As with an ordinary household policy, the insurance only holds good if you continue the payments. If one year you did not pay and were to die, the policy could be void and your successors would receive nothing.

Term policies involve a definite commitment. As opposed to paying premiums every year, you elect to make a regular payment for an agreed period: for example, until such time as your children have completed their education, say eight years. If you die during this period, your family will be paid the agreed sum in full. If you die after the end of the term (when you have stopped making payments), your family will normally receive nothing.

Endowment policies are essentially savings plans. You sign a contract to pay regular premiums over a number of years and in exchange receive a lump sum on a specific date. Most endowment policies are written for periods varying from 10 to 25 years. Once you have committed yourself, you have to go on paying every year (as with term assurance). There are heavy penalties if, after having paid for a number of years, you decide that you no longer wish to continue.

An important feature of endowment policies is that they are linked in with death cover. If you die before the policy matures, the remaining payments are excused and your successors will be paid a lump sum on your death. The amount of money you stand to receive, however, can vary hugely, depending on the charges and how generous a bonus the insurance company feels it can afford on the policy's maturity. Over the past few years, pay-outs have been considerably lower than their earlier projections might have suggested.

Options. Both whole life policies and endowment policies offer two basic options: with profits or without profits. Very briefly the difference is as follows.

Without profits. This is sometimes known as 'guaranteed sum assured'. What it means is that the insurance company guarantees you a specific fixed sum (provided of course you meet the various terms and conditions). You know the amount in advance and this is the sum you - or your successor - will be paid.

With profits. You are paid a guaranteed fixed sum plus an addition, based on the profits that the insurance company has made by investing your annual or monthly payments. The basic premiums are higher and, by definition, the profits element is not known in advance. If the insurance company has invested your money wisely, a 'with profits' policy provides a useful hedge against inflation. If its investment policy is mediocre, you could have paid higher premiums for very little extra return. The lack of money saving in this scenario could be depressing.

Unit linked. This is a refinement of the 'with profits' policy, in that the investment element of the policy is linked in with a unit trust.

Other basics. Premiums can normally be paid monthly or annually, as you prefer. Size of premium varies enormously, depending on the type of policy you choose and the amount of cover you want. Also, of course, some insurance companies are more competitive than others. As very general guidance, £50-£70 a month would probably be a normal starting figure. Again as a generalisation, higher premiums tend to give better value as relatively less of your contribution is swallowed up in administrative costs.

As a condition of insuring you, some policies require that you have a medical check. This is more likely to apply if very large sums are involved. More usually, all that is required is that you fill in and sign a declaration of health. It is very important that this should be completed honestly: if you make a claim on your policy and it is subsequently discovered that you gave misleading information, your policy could be declared void and the insurance company could refuse to pay.

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