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What
are the two types (term and permanent) of life insurance?
While
there a many different types of life insurance policies,
they generally fall into two categories – term and
permanent.
Term
Term Insurance is the simplest form of life insurance. It
provides financial protection for a specific time, usually
from one to 30 years. These policies are relatively
inexpensive and are well suited for goals, such as insurance
protection during the child-raising years or while paying
off a mortgage. They provide a death benefit, but do not
offer cash savings.
Purchasing term insurance is like renting a home. It is a
short-term solution. Monthly costs are usually lower, but
you will not be building equity. Just as many people rent
(while saving to buy a home), individuals who need insurance
protection now, but have limited resources, may purchase
term coverage and then switch to permanent protection.
Others may view term insurance as a cost-effective way to
protect their family and still have money to put into other
investments.
Permanent
Permanent insurance (such as universal life, variable
universal life and whole life) provides long-term financial
protection. These policies include both a death benefit and,
in some cases, cash savings. Because of the savings element,
premiums tend to be higher. This type of insurance is good
for long-range financial goals.
Purchasing permanent insurance is like buying a home instead
of renting. You are taking care of long-term housing needs
with a long-term solution. Your monthly costs may be higher
than if you rent, but your payments will build equity over
time. If you purchase permanent insurance, your premiums
will pay a death benefit and may also build cash value that
can be accessed in the future.
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