There are two main reasons why people buy life insurance. If you are relatively young and have young children, you buy life insurance primarily to replace income in the event that you or your spouse die prematurely. As you get older, you might want life insurance to provide liquidity to your family for funeral expenses, debts, taxes or distribution of property without selling certain assets that would otherwise have to be sold to make a distribution. Essentially, for each of these goals, there is a different kind of insurance product available, and today I want to talk about two different kinds of life insurance you can buy.
#1: Term Insurance
If you're looking to replace income in the event of your or your spouse's untimely death , you'll most likely be looking for term insurance. Term insurance is essentially a contract that will pay a set amount, called the death benefit, to your designated beneficiaries in exchange for an annual premium. These term insurance contracts last around 10 to 30 years, and if you live through the 10 or 20 or 30 year term, what you've paid is simply gone and the insurance never pays out. These contracts can be relatively inexpensive, particularly if you buy them at a younger age while you are healthy. The older you get, the more expensive an insurance product like term insurance is going to be. Almost every insurance company out there will sell this kind of insurance, so you can shop around for the best rate.
#2: Permanent or Whole Insurance
If you're looking for insurance that is not going to terminate, which is insurance that you want to be sure is there after death, then you're looking for a product called permanent or whole insurance. This is a different kind of a product, because the premiums that you pay go to an accumulated cash benefit. The advantage of this is that the premiums you pay aren't lost – actually you have the ability to access them. You can borrow against the cash value of your policy, and that benefit goes to your family as well. The more you pay over time, the higher the benefit is, and at a certain point you may no longer need to pay any additional premiums; that death benefit will be there whenever you happen to pass away, whether it's 20 years from now or 50 years from now.
Permanent or whole life insurance is going to be significantly more expensive, because there is a guaranteed payout upon death. The trade-off is that you'll be able to access what you pay in one way or another, because the premiums are building a cash benefit in addition to the death benefit.
These are some basic differences, and the kinds of products you might choose depending on your situation. If you need help finding somebody to talk to about life insurance, we can certainly connect you with people. Feel free to shoot us a note and let us know how we can help you.