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Life insurance isn’t a fun thing to think about, and it may seem like an unnecessary expense. But if you have people who depend on you for financial support, then life insurance is really about protecting them in case something happens to you – your designated beneficiary would collect a financial benefit upon your death. Life insurance can be confusing, so here’s a rundown of the basics.
Types of Life Insurance
This is the simplest and generally the cheapest form. You buy coverage for a specific period of time. It can usually be renewed, but premiums will increase based on age and health factors. There is no cash value.
All other types of life insurance are permanent, but there are several varieties. They all include a cash element that builds cash value, in addition to the death benefit. Once that cash value accumulates, it can be accessible to the policyholder tax-free. The following are some of the common types of permanent life insurance.
You purchase this policy to cover your entire life, as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium that becomes the cash value. These are more expensive than term policies in the early years, but they even out because the premium does not increase.
This policy is similar to whole life, but has the potential for higher earnings on the cash component. It is more flexible in terms of changing premiums and face value throughout the policy. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.
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