FAQ

What are the principal types of life insurance? | III

Life insurance can be an essential part of financial and legacy planning. When looking for coverage, you can find several products that fall into two main categories: term life insurance and permanent life insurance (also commonly known as whole life insurance). Understanding the essential differences between these two main types of insurance can help you make coverage decisions based on your needs and goals.

Remember that group insurance products, policies that cover a group of people under a single contract (for example, coverage offered through an employer), may differ from policies sold to individuals. the following information below focuses on products typically sold to individuals.

Reading: What kind of life insurance

what is term life insurance?

A term life policy is purchased to last for a specific period, such as 1, 5, 10, or sometimes up to 30 years. coverage expires when that period ends, hence the name, and therefore payment only occurs if the insured’s death occurs during the specified period. if the insured person outlives the original policy period, renewal of coverage may be an option, but premiums may be higher.

how term life coverage works

A term life policy may be the simplest and most straightforward life insurance option for many people. A death benefit can replace income you would have earned for a set period, such as until a minor dependent grows up. or you can pay off a large debt, like a mortgage, so that the surviving spouse or other heirs don’t have to worry about making the payments.

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When exploring life insurance options, you may come across the word “cash value.” term life policies do not accumulate cash value. their premiums go towards their payment, making costs to policyholders comparatively lower than permanent life insurance. however, some insurers have created term life products with a “return of premium” feature, returning a portion of the premiums you pay if a claim is not filed before the end of the coverage period. These policies can be more expensive up front than standard term life insurance.

There are different types of term life insurance, including level term and declining term.

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