Everyone in the pool pays insurance premiums while hoping he will not need to collect. The company bears the risk, hoping that the amount of the premiums paid will cover any losses incurred. In the case of life insurance, your life is the risk. The insurance company offers a policy to an individual after carefully weighing the likelihood he will die while the contract is in force. A life insurance policy provides a cash payment when a person dies. This payment is known as the death benefit. Many people buy life insurance to protect the people who are dependent on them. Others buy life insurance as a way to leave a cash gift to their spouse, children, grandchildren, and charities at their death. If you have made the decision to buy a policy, you may wonder which type of policy to choose since there are several different types of policies.
Whole Life –
- 1. When it comes to life insurance, employees may not know they need both Term Life and Whole Life. Term and Whole Life work together to provide comprehensive protection throughout an employee’s entire life.
- You can keep Whole Life Insurance as long as you want. Once you’ve bought coverage, your cost won’t increase as you age. The benefit amount stays the same, too — it doesn’t decrease as you get older. That means you get protection during your working years and into retirement. Whole Life Insurance also earns interest, or “cash value,” at a guaranteed rate of 4.5%.* You can borrow from that cash value, or you can buy a smaller, paid-up policy — with no more
Term Life –
- Provides protection for a limited amount of time such as 10, 15, or 20 years; or up to a certain age, such as 80, as long as premiums are paid.
- Term insurance is the most basic type of life insurance. The policy is written for the term of the policy, usually from one to 30 years. If the insured dies within the stated term, the insurance company pays the death benefit to the beneficiary. When the term ends, the insurance ends. The premiums for term insurance are usually the lowest among the different types of life insurance, but will increase with the age of the insured. There is no cash value in a term life policy. (Cash value will be discussed in greater detail later.) This means there is no money for loans or to pay for the insurance if you can’t pay the premiums.
Why You May Need Life Insurance
Paying for funeral and burial expenses can be a heavy financial burden. If the person who dies is the primary wage earner for the household, it may be difficult for those left behind to pay the mortgage, utilities, car loans, food and any other expenses. It could be very difficult to maintain the family’s same standard of living without that income. Life insurance can make sure your family is not burdened with the debt left behind and can ease the financial hardship associated with the death.
