Insurance Rates

Term Life Insurance vs Whole or Universal Life Insurance

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Life insurance is a fairly easy concept to understand. If a person dies while covered by a policy, the insurance provider pays a cash amount to beneficiaries, usually family dependents, so they have funds to live on after the death of covered person. This financial tool is often used by income earners to provide their loved ones a safety net should an unexpected death occur. However, where life insurance gets a bit complicated involves the types of coverage available.

Term life insurance, the most basic of coverage available, provides a simple protection for a set period of time. Terms are usually set for 10, 20 and 30 years. Covered parties enjoy the protection being in place as long as monthly or quarterly payments are made timely. When the period ends, if the client is still alive, then the insurance provider keeps all the payments without any further obligation.

Permanent life insurance comes in a couple of forms, depending how it is constructed. Whole-life insurance, for example, connects a coverage plan to a fund used for investment. The payments are split between the cost of the coverage and then a portion that goes an investment fund to build a cash deposit that grows. Afterwards the client can cash out or be paid the investment part that has grown without taxes.

Another type of permanent life insurance involves plans dubbed “universal life.” These plans involve a similar split payment model where part of the premium goes to the plan and part goes into a money-market account to save up a cash value. The return tends to be lower for the cash value, but a bit more protected versus open investment tools.

No policy type is perfect. Consumers need to choose the plan that works best for their specific situation. Further, conditions change over time, so a plan that works early on in life may need to be changed out to a different type later on in life. Research on how each plan type works is the best consumer protection before making a decision and commitment.

About John Krystof

John Krystof writes about personal finance and money matters for He was born and educated in Central Europe, but presently resides in New York City.

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