There are two basic types of life insurance, term insurance
and cash value insurance. There are many variations on these two basic
types. Term Policies provide life insurance for a specified period
of time. These policies provide benefits in the event of death, but
they generate no "cash value". If you have a limited amount
to spend, and only need the additional coverage insurance for a finite
period of time (for instance.. until the children graduate from college),
you may be able to get more coverage by acquiring term insurance than
by with cash value insurance. Today's term policies usually have
two sets of premiums - guaranteed maximum premiums, and "current
premiums", which are usually much lower. The company cannot increase
current premium above the guaranteed maximum premiums shown in the policy.
When you buy term insurance you need to make a choice
as to how long you want the protection. You may renew the policy without
a physical examination for the period of years specified in the policy.
Some term insurance can be converted to cash value insurance up to a
specified age with no physical examination. Premiums for the converted
insurance will initially be higher than the premiums you would be paying
for the term insurance. Cash-Value Insurance combines death benefits
with a cash accumulation feature. The buyer of a cash value policy pays
more in the early years than for term insurance, but the money not needed
to pay for the cost of the death benefit accumulates as interest. If
the policy is surrendered before the insured dies, there may be a cash
value paid to the owner. In addition you can make loans from your policies
cash value. This interest rate for most policies decreases after
a specified number of years, and if the loan is never paid back then
the amount is deducted from the policy's benefit. As a general
rule, it is not a good idea to buy cash value life if you plan to surrender
early.
If all premiums are paid, cash value insurance usually
lasts for the whole life of a person, and pays death benefits to the
beneficiaries named in the policy upon the death of the insured. The
cash value can be used as loan collateral for borrowing funds at the
interest rate specified in the policy. Any outstanding loans are deducted
from policy proceeds at death or surrender. Some of these products may
enjoy tax advantages.
Learn More...
Life
Insurance Overview | Understanding
The Basics | Term
& Cash Value
Coverage Amounts
| Reading Policies | Planning
Concerns | Life
Calculator | Life Glossary
Please Note: The
information contained in this Web site is provided solely as a source of
general information and resource. It is a not a statement of
contract and coverage may not apply in all areas or circumstances. For a complete
description of coverages, always read the insurance policy, including
all endorsements.
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