Purchasing a life insurance policy is an investment many people evaluate during the estate planning process. In the event of one’s death, a life insurance policy is a safety net that ensures their loved one’s future financial obligations are met, covering items such as funeral costs, outstanding debt, estate taxes and everyday living expenses. Also, if a stay-at-home parent should pass away, expenses such as childcare and other domestic items can create financial hardship, too.
Term Life Insurance
Just as its name implies, Term Life Insurance covers you for a specific period of time, or term, that you choose. Since it offers a death benefit but no cash value, Term Life Insurance is an inexpensive way to protect your beneficiaries for a specified period of time. Term Life Insurance is best suited for various individuals and needs. It is ideal for:
- People who have a temporary need for life insurance protection
- Individuals who need a large amount of insurance protection but have limited cash
- Those with specific business needs, such as additional coverage for a key employee
At the option of the policyholder and without evidence of insurability, term life insurance can be renewed at the end of the term for a limited number of successive terms. It can also be converted or exchanged for a permanent insurance policy, without evidence of insurability down the road. Once the term expires, coverage ceases, and the policy has no further value. It’s important to note that rates generally increase along with the insured’s age.
Permanent Life Insurance
Permanent life insurance is any form of life insurance other than term. Examples are whole life, universal life and variable life. These policies combine term life insurance with a long-term, tax-sheltered savings plan.
Whole life is the most basic type of Permanent life insurance. It provides coverage that lasts a lifetime and also builds up a cash value that you can borrow against, withdraw or use to pay future premiums. A life insurance policy with a cash value is ideal for:
- Those who have a lifetime need for insurance protection
- Individuals who prefer stable premiums over the life of the policy
- People who want a policy that allows them to build tax-deferred values
- Those who value the high degree of coverage the policy affords
While rates for a whole life insurance policy remain stable over the life of the policy, premiums are initially more costly than those of term insurance policies.