Life insurance comes in many shapes and sizes, but there are two basic types of life insurance policies: Term or Temporary life insurance and Permanent life insurance. They both do exactly what it sounds like they do. Term insurance is temporary and offers coverage for a specific period of time and pays the face amount of the policy if the person insured dies during that “term.” Permanent life insurance usually has no fixed time limit; as long as the premiums are paid, the benefit will be paid no matter when the insured dies.
Types of Term Life Insurance Policies
Term life insurance, which is the most affordable policy available, is designed to meet your temporary needs by providing protection for a specified period of time the term (for example, a term of 10, 20 or 30 years). This policy makes sense if you have financial needs that will diminish over time, such as a home mortgage or your child’s tuition.
Each year, a premium is paid to cover the risk of death during that year. It has no cash value. The only way to collect anything is to die before it expires. If death occurs, the life insurance beneficiary collects the death benefit of the policy. The money issued is generally free of federal income taxes.
Types of Permanent Life Insurance Policies
Permanent life insurance policies provide lifelong protection. As long as you continue to pay the premiums, coverage will continue, and the death benefit will be paid when you die. Permanent life insurance also provides a savings element; these policies accumulate a cash value over a long period of time.
In addition to traditional term life insurance and permanent life insurance, there are several other types of life and health insurance available.
