With term life insurance, think of it as renting vs. owning. Term is just that, a term or period of time. Say you had a 10 year term life policy, that policy is coverage on your life for 10 years. If you do not die during the 10 years the policy matures and so does the coverage.
Term Life Insurance is the least expensive of the two types. There is no cash value in a term policy. It is similar to your auto insurance or home insurance; if you did not get into an accident or your house did not burn down, there is no cash value to the money you spent on the coverage. If you are lucky and live beyond the life insurance term, that was the cost of being protected. That is why term insurance is the least expensive coverage of one’s life.
Most policies today allow you to convert your term life policy to a permanent policy before the term runs out without any medical underwriting. The cost of the new permanent plan is based on your age at the time of conversion. The older you are the more costly.
When it comes to permanent life insurance coverage there is a cash building element to these plans. Depending on what you are trying to accomplish with your plan will determine how much cash value you may want or need to have in your policy.
There are three types of permanent life insurance;:
Your goals and desire for the coverage will determine which of those plans will be the best match for you.
People who have a serious health problem may receive a policy with a “graded death benefit,” which means the coverage amount increases over time and your beneficiaries won’t receive the full face value if you die within the first few years of the policy.
Remember that any life insurance policy can be used to pay for a funeral. You can buy any term or whole life policy and instruct your beneficiary to use a portion or all of the death benefit for your funeral. Standard term and whole life policies, however, aren’t offered in low face amounts like $5,000, which is why final expense policies can be handy if you need insurance money only to cover funeral expenses.
If you have other financial obligations, such as a mortgage and dependents who are counting on you to pay for college, you’re better off buying a standard term life or whole life policy in an amount that can cover a number of family needs, including final expenses.
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