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Life insurance pays a specified sum to the beneficiaries upon the death of the insured. It is generally used to provide cash to your family in the event of your death. There are several types of life insurance policies. The most common types are whole life insurance and term life insurance. Whole life insurance provides a lifetime of protection as long as you pay the premiums to keep the policy active. They also accrue a cash value and thus offer a savings component. Term life insurance provides protection only during the term of the policy and the policies are usually renewable at the end of the term.
- Term Insurance
Term life insurance is a low-cost form of life insurance that covers the insured for only a certain period of time (the term), not for his entire life. If the insured dies during the coverage period, the beneficiary receives the death benefit. If the insured survives the time period, the policy expires and no benefit is paid. Term life insurance is best when coverage is only needed for a certain period of time or the short-term cost is the most important factor. In early years, term life insurance costs significantly less than whole life or other types of policies. It becomes increasingly expensive as the insured grows older.
Based on a "risk profile" created by the insurance company, you will be offered an insurance "premium" (monthly or yearly cost) for the amount of life insurance coverage you request. This risk profile takes into consideration a number of factors (including your age, weight, gender, personal health history, family health history, smoking/drinking habits, where you live, and various other aspects about your life like your marital status). Like other forms of insurance, saving money on Life Insurance is really just about shopping around for the best quote (since different companies have different opinions on risk profiles).
- Whole Life Insurance
Whole life insurance, also known as traditional, straight, or permanent life insurance is a policy that is kept in force for a person's whole life as long as the scheduled premiums are paid. Whole insurance policies can be a great value because they accrue cash value--you get savings as well as insurance. Some even pay a dividend which depending on how well the insurance is doing. If the company is doing well then the premiums are paid back to the policyholder in the form of dividends. The policyholder can use the dividend to offset his premiums, to purchase more insurance, or to purchase additional term life insurance.
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