Types of Life Insurance
Generally, there are 2 different types of life insurance: Term Insurance and Permanent Insurance.
1. Term Life Insurance. Term life insurance provides monetary protection for a specified number of years (e.g., 10-years, 20-years, etc) for a scheduled premium. The policy does not accumulate cash value. Term is usually considered "pure insurance", where your premiums buy financial protection in case you die and nothing else.Term is the generally considered the easiest and most inexpensive kind of policy to buy. It provides pure financial protection, without a cash-value component.
It is often considered "what if I die insurance". What would happen if I died in a car crash? How would my family survive, financially, without me? A term life insurance policy has one main purpose: to pay a sum of money (called the "death benefit") to a person that you designate upon your death. The proceeds from this type of policy and the policy limits are equal. For example, a $100,000 life insurance policy will pay a $100,000 death benefit. This policy offers protection to your family by ensuring they have enough money to replace your income, and to provide for your funeral and the expenses associated with your passing.
2. Permanent Life Insurance. Permanent life insurance is protection that remains in-force until the policy reaches maturity (the pay out). The insurane company will pay out unless the policy owner does not pay the premium when it's due (by expiration or lapse). This type of policy can't be canceled by the insurance company for any reason (except when there is fraudulent statements in the application) - and the insurance company can only cancel within a set amount of time, as defined by law (generally within the first 2 years). Permanent life insurance will build a cash value which reduces the amount of risk to the insurer, and thus the expense of insurance to the insurer over time. This means that if a policy is issued to an elderly person, for example, at a face value of $1,000,000, can be considered prohibitively expensive. The policy owner has access to the cash value held in the account by withdrawing, loans against the cash value, or by handing over the insurance policy back to the issuer and receiving a surrender value.
