Types Of Life Insurance In The USA

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There are two primary types of life insurance: term life and permanent life.

Term life insurance

Term life insurance is a policy where you choose the length of coverage, such as 10, 15, 20 or 30 years. If you die within that term, your beneficiary will receive the death benefit. If you outlive the term, there is no death benefit.

Term life insurance is good for folks who want to cover a specific financial concern, such as income replacement during your working years.

Permanent life insurance

Permanent life insurance is good for folks who want a death benefit paid out no matter when they die. Permanent life insurance policies also have a cash value component that can accumulate money on a tax-deferred basis. Permanent life insurance is usually significantly more expensive than term life.

People who choose permanent life insurance usually have specific goals in mind, such as supporting financial dependents, funding a trust for heirs, or building cash value to supplement retirement savings.

Permanent life insurance can be broken down into main subtypes:

  • Whole life insurance. This type of life insurance is predictable because the premiums, rate of return on cash value and the amount of the death benefit are all fixed and guaranteed.
  • Universal life insurance. This type offers more flexibility and you may be able to adjust premium payments and death benefits within certain parameters. The cash value growth will depend on the insurer and the type of universal life insurance you buy: guaranteed universal, indexed universal or variable universal.

Permanent life insurance policies can be difficult to understand from quotes or hypothetical illustrations. Simply comparing life insurance quotes or some projection of cash values won’t reveal whether the policy is a good value. “Look under the hood,” advises Flagg of Veralytic. For example, a life insurance agent or financial advisor can request a Veralytic report to see how the policy you’re considering compares to industry benchmarks.

“Ultimately, the premium you’ll have to pay and/or the cash value growth you’ll see depends on what the insurer actually charges and how well the investments do. You want to confirm that internal policy costs are competitive and that the investments within the policy fit your risk tolerance,” cautions Flagg.

source:ForbesAdvisor.com

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