- Know what you are buying before purchasing life insurance.Hemera Technologies/AbleStock.com/Getty Images
Life insurance provides payment in the event of death, enabling surviving family members to grieve without the worry of financial ramifications. A variety of life insurance plans offer options suitable for individuals, families and retirees. But not all offer the same benefits. Understanding the differences in policy terms and coverage affords individuals the opportunity to make informed decisions. - Whole life insurance, also known as cash value insurance, pays a predetermined amount upon death in return for a standard monthly or annual payment. The coverage extends from the day the plan is purchased until death, regardless of health status. In 2010, more than 70 percent of all life insurance policies sold in the United States were cash value or whole life coverage. Many insurance agents sell cash value plans as a way to combine life insurance and savings. Most whole life policies offer "living benefits" which means the cash value of the plan can be dispersed to provide financial relief for reasons such as disability or illness.
- Term life insurance provides coverage with flexibility and ends at a predetermined age. Term life insurance can also be purchased to cover two people -- typically a married couple -- called joint term life insurance. Term life insurance appeals to people who are focused on the amount of the premium, as term life insurance policies are usually affordable. These policies offer coverage until the age of 65, if at that time the policy holder is still alive, the coverage simply ends and benefits are not paid. The term life insurance policy only pays the beneficiary upon death of the policy-holder.
- Determining what type of life insurance is right for you and your family comes down to personal choice and comfort. Life insurance plans that offer living benefits may be more appealing to some than paying into a policy that only pays out if the policy-holder dies. When making a decision, a consultation with a financial advisor may provide insight into your personal situation giving you options that suit your personal needs. Key considerations to include in your discussion are the amount of the monthly premium, when the policy will pay benefits, and the duration of the policy. The key difference to remember between whole life and term life policies is whole life insurance will be in place until the purchaser dies, while term life insurance policies expire at the age of 65.
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