What Is Term Life Insurance?

Many of our readers may be asking about the different types of life insurance and, specifically, what is term life insurance and how is it different from other types of life insurance? Perhaps, a more important question: is term life insurance right for me? We are going to answer both of those questions in this article, but let’s start with what insurance is. Life insurance is a contract between a policy holder and the insurance company. It is a mechanism to spread risk over a large pool of policy holders and pay a specified sum of money in the event of death or, in some cases, permanent disability or critical illness. The policy holder pays a premium, either all at once, or over a period of time, typically monthly or annually, and the contract remains in effect until its expiration. There are two main types of life insurance. Protection policies, including term life insurance, offer a defined benefit, as mentioned above. Investment policies, such as whole life, universal life, or a variable life annuity, have the primary object of growing capital over a period of time with the added benefit of a defined benefit, again described above. So, the main question that a person should ask themselves is this: do I wish to create an investment or do I wish to have a defined benefit protection in the event something bad happens. If the desire is to create an investment, then whole life, universal life, or a variable life annuity is the policy of choice. However, consider further a few items first. With whole life and universal life, the policy holder pays premiums into an account that accumulates cash value. The key difference is that, with whole life, the premiums typically increase as the policy holder ages compared to universal life in which the premium typically remains fixed, but the cash value of the policy is reduced by the amount of premiums to fund the death benefit. In both cases, the policy holder can often borrow against the insurance policy (much like a 401(k)), but borrowing against the cash value of the policy may also reduce the benefit. Variations of universal life are a variable life annuity or an equity indexed annuity which will be indexed to either prevailing interest rates or an equity market respectively. The largest potential challenge with all of these policies is to ensure that the cash value of the investment component is generating a rate of return as good as other potential investments for the same cost, which is not always the case. In many cases, these investment policies are used by older policy holders for estate planning. With a term life insurance policy, the policy holder will pay a specified premium over a fixed term. Those terms are typically 10, 15, 20, and 30 year terms. At the end of the term, there is no cash value in the policy. The trade off is that, especially for younger persons, the premium is a fraction of the premiums for any type of investment insurance policy. So, if an individual’s desire is to secure a protection benefit at a reduced cost, then term life insurance quote is almost always the most economical choice, particularly for younger persons. The difference in premiums between an investment policy and a term life insurance policy can still be invested as that policy holder sees fit. To understand your particular situation, consult your financial advisor or a PeopleSurance® agent who can help you calculate the difference for your particular situation. To estimate the total amount of protection benefit you need, regardless of the type of policy, PeopleSurance® has a life insurance calculator that allows you to input your current financial status and uses current tax rates, college rates, and rates of inflation to provide an objective, personalized financial plan for you. PeopleSurance® has resources available at www.peoplesurance.com and our agents can be reached at any time via email, phone, or live chat to assist you in all your financial decisions. This article has been taken from : http://www.ideamarketers.com/?articleid=3547840&CFID=234499188&CFTOKEN=60819753