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Cash value premiums can also be withdrawn from like a pension that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
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.