While homeowners insurance protects your home, and car insurance protects your vehicle, what about insurance that protects your family’s financial security. If you are one of the many Americans that feel the need to get life insurance but feel overwhelmed with all the options available in the market, read on for a comprehensive guide to getting the right policy for you.
What is Life Insurance?
Life insurance is a financial tool that involves an agreement between you and an insurance company. This agreement stipulates that, in return for your premium payments, in the event of your death, the insurance company will pay a lump sum amount, to your beneficiaries, known as a death benefit.
What Are The Types Of Life Insurance?
There are primarily two types of life insurance: term insurance policies and permanent life insurance policies. The difference is that term insurance provides coverage for a fixed amount of time, whereas permanent life insurance provides lifetime coverage.
Term Life Insurance: Term insurance is the most affordable and popular type of life insurance and provides coverage for a set policy term. Some policies also offer the option of renewing your coverage in one-year increments, with each renewal being at a higher rate, with guaranteed renewability.
Permanent Life Insurance: Permanent life insurance on the other hand offers lifelong coverage and is more expensive as it lasts your entire life and usually builds cash value. This cash value, however, can be accumulated on a tax-deferred basis while allowing you to borrow against it or make a withdrawal.
Permanent life insurance is further broken down into different varieties, namely:
– Whole Life Insurance: These policies offer a fixed death benefit and a cash value with a guaranteed rate of return. Most of them also pay dividends.
– Universal Life Insurance: These policies offer even more flexibility allowing you to change your premium payments and death benefit amount. They tend to also involve investment subaccounts that you can utilize.
– Burial Insurance: These are small whole life policies with a minor death benefit, usually ranging between $5,000 and $25,000 which is designed to cover only the final expenses and funeral costs.