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Life Insurance Print E-mail

 

 

 

There are two basic types of life insurance, term insurance and cash value insurance. There are many variations on these two basic types. Term Policies provide life insurance for a specified period of time. These policies provide benefits in the event of death, but they generate no "cash value". If you have a limited amount to spend, and only need the additional coverage insurance for a finite period of time (for instance.. until the children graduate from college), you may be able to get more coverage by acquiring term insurance than by with cash value insurance. 

Today's term policies usually have two sets of premiums - guaranteed maximum premiums, and "current premiums", which are usually much lower. The company cannot increase current premium above the guaranteed maximum premiums shown in the policy.  

When you buy term insurance you need to make a choice as to how long you want the protection. You may renew the policy without a physical examination for the period of years specified in the policy. Some term insurance can be converted to cash value insurance up to a specified age with no physical examination. Premiums for the converted insurance will initially be higher than the premiums you would be paying for the term insurance.

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 Cash-Value Insurance combines death benefits with a cash accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the money not needed to pay for the cost of the death benefit accumulates as interest. If the policy is surrendered before the insured dies, there may be a cash value paid to the owner. In addition you can make loans from your policies cash value.  This interest rate for most policies decreases after a specified number of years, and if the loan is never paid back then the amount is deducted from the policy's benefit.  As a general rule, it is not a good idea to buy cash value life if you plan to surrender early.

If all premiums are paid, cash value insurance usually lasts for the whole life of a person, and pays death benefits to the beneficiaries named in the policy upon the death of the insured. The cash value can be used as loan collateral for borrowing funds at the interest rate specified in the policy. Any outstanding loans are deducted from policy proceeds at death or surrender. Some of these products may enjoy tax advantages.