There are two main types of Life Insurance that are the most sought after – Term Life and Permanent Life Insurance
Term Life Insurance
Term Insurance Insurance is life insurance that is for a specified period of time typically between 10 and 30 years. If the insured outlives the period of time no payout is made. You can usually renew the period as long as you medically qualify up to an age of 70 – 80 years old. This is the least expensive type of life insurance which protects your family in the event of your premature death. If the wage earner is deceased, the family would loose the income that is generated by the wage earner(s) so a life insurance pay-out would off-set the lost income of the deceased. Proponants of Permanent Life Insurance would use the analagy that term life insurance is like renting verses owning a home. The family is protected by the term life insurance but you don’t get to keep it. If the insured survives the specified term the insurance disappears. The philosophy behind term life insurance is that when you are relatively young you tend to have young children, expenses, some debt and minimal savings. As you get older the idea is that you tend not to need life insurance because you should have less debt, the children will have grown and left the home and the family should theoretically has a good amount of savings. I repeat, IN THEORY the need for insurance is unnecessary. I have never met a beneficiary that complained that they received too much in life insurance proceeds.
Permanent Life Insurance
Permanent Life Insurance is life insurance that is created to last for the entire lifetime of the insured. It will be a higher premium but will allow you to have a number of options you could not get from any other financial instrument. One advantage is that when you pre-decease your beneficiaries you will leave them with a sum of money that in theory, they will not need but will be very grateful to have and it will allow them more options than if they had no life insurance proceeds. Another benefit is the tax advantages – not only does your cash value accumulate tax deferred but you can pull out the cash as tax free income in later years when you retire. Proponants of Term Life insurance would tell you that you will end up with more money at retirement age if you buy term and invest the difference rather than placing the same amount of money into a permanent life policy. On the surface this may be true, but if you take a close look you will find that premise to be false. When you calculate the tax advantages and the safety of the cash accumulation you will come out way ahead with permanent life insurance?