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A Beginner's Guide to Term Life Insurance

There are two basic types of life insurance: term insurance and cash value insurance. Term insurance usually boasts cheaper premiums but it is not an investment in your future. Cash value life insurance policies are more like investments that can be partially cashed in or borrowed against at some point in the future. The balance of what remains after a loan or cash out is what is paid out to the beneficiaries after death. Many life insurance companies offer polices that combine term insurance with cash value insurance for the latter years in life when you may need a monthly income.

Term insurance covers the individual for one or more years. A death benefit is only paid out if an individual dies during the specified period of time. In terms of value for your dollar, term life insurance offers the greatest coverage for the least amount of expense.

You can renew term life insurance policies before they expire. However, keep in mind that each time you renew the policy, the cost of the premiums rises. Also some companies may ask you to pass a physical examination before they will continue your coverage.

Cash value life insurance is a type of insurance where the costs of the premiums are higher during the first few years than they would be for term life insurance. This is because part of your premiums are invested by the company to help you build up a cash value that you can borrow from in the future. If you are unable to pay back this loan and any interest than the amount is subtracted from your benefits when you die.

Cash value premiums can also be withdrawn from like a pension that supports you on a monthly basis in your senior years. It can also be borrowed from to pay other kinds of costs such as tuition for your child or even to buy additional life insurance premiums for other members of the family. Cash life insurance policies are available as several types: whole life, universal life and variable life are all types of cash value health insurance.

Many life insurance companies will also allow you to trade in a term life insurance policy for a cash value policy during a specified allowable conversion period. Premiums for the new cash policy will usually be much higher than what you have been paying for the term life insurance, but possibly worth it in the end especially if you are trying to build up a nest egg for your later years.

When shopping for a term life policy realize that all term life insurance polices are not the same. Term life insurance policies only cover you for a specified number of years. Insurance that covers you for a lifetime is not term life insurance.

Thankfully most companies do offer you some flexibility when it comes to combining different types of policies or changing your term life insurance to the cash value type of policy. Term life insurance is a viable choice for many individuals as it is much more affordable than cash value life insurance. The plus is that nowadays you can switch the term life insurance to cash value when you can afford to do so.



 

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