Life insurance is a hedge against one’s inevitable death and delivers money when it is most needed. It can also be a vehicle to accumulate money to be used during your lifetime. There are numerous types of policies in the marketplace and many variations within each type. The two basic types of life insurance are term life and permanent life.
1.) Term Life
When you buy a term life insurance policy, you are essentially renting life insurance for an agreed upon time period. It is temporary insurance and there is no savings element in the policy. The face amount of the policy is paid if you die during the term of the policy; if you outlive the term of the insurance coverage, nothing is paid. When the coverage period expires, you may be allowed to extend or renew your policy at an exponentially increasing cost for a set period of time (depending on the specific policy), as long as you remain insurable.
Term insurance is generally the most efficient way to achieve maximum life insurance protection for a minimum current cash outlay. By definition, it is well suited to cover short-term needs and might be used appropriately to provide coverage during your working years, child’s early years, or for the duration of a loan or mortgage.
2.) Permanent Life
Unlike term life, permanent insurance offers protection for your lifetime, as long as your premiums are paid. The death benefit is a guaranteed amount and part of the premium payments accumulate in a cash value account. The purpose of permanent insurance is to protect against long-range or permanent needs.
There are advantages to permanent insurance, some of which have underlying risks. First, the cash value grows tax-deferred and can be borrowed against, although unpaid policy loans and withdrawals will reduce the death benefit available to your survivors. Second, permanent insurance provides a guaranteed minimum death benefit and the policy cash value grows at a steady and guaranteed rate. Finally, premiums are a fixed amount that can be paid in two ways – you can opt to pay lower premiums over the course of your lifetime or choose to pay higher premiums for a limited term.
Long-term care refers to the assistance required when a person is unable to perform activities of daily living due to illness, accident, cognitive problems, or the frailties of old age. This custodial care includes needing help with bathing, dressing, eating, toileting, continence, and transferring.
For more information, please visit our Long-Term Care page.