While most people consider having life insurance a ‘must’ for their family, it is important to know all of the facts before choosing a policy. Not only are there different levels of coverage, but these policies can become relatively complicated when they are used as an investment. Read ahead for a glimpse of how these policies work and what you can do to find the best coverage for your own situation.
Term and Permanent
Every one of these policies can be broken down into either term coverage or permanent coverage, and deciding between these two options will be one of the biggest decisions that you have to make. A term policy will only cover you for a set period of time before it expires. While the coverage does vary, most policies remain valid for 10 to 30 years. Most policyholders will use this form of coverage to protect their families from struggling with specific expenses such as a mortgage or tuition for college.
Permanent policies are typically more expensive, but the policyholder can rest assured that the coverage will remain active for the rest of their life, as long as the premiums are paid. Larger permanent policies are often purchased to help children and grandchildren with larger expenses later on in their lives, such as buying a home. Smaller permanent policies can be used to cover basic funeral and medical expenses.
Anyone who is searching for this type of insurance will need to make a few more choices about what type of policy will best suit their own needs. Options such as return of premium (ROP) insurance will allow the policyholder to receive all of their money back once the coverage has expired, but the premiums can be much higher.
Additionally, many people want to use their life insurance account as an investment vehicle. A whole life policy can build tremendous cash value over time. This cash value is tax-deferred in many situations and the policyholder can borrow from it, pay their premiums with it, or simply continue building wealth for their family.