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04-13-2009 by Colleen King
Once of the best things about getting my insurance license was learning the difference between the two basic types of insurance, which had eluded me for years. Basically there are two types of life insurance and they break down to temporary and permanent.
Love this, this should be our ‘real’ security
An easy way to remember the difference, is ‘term is temporary’—Term life insurance is something you buy for a specific period of time, 10, 20, 30 years for example, and for a specific amount. At the end of that time period, if you are still around, that’s it; it’s gone. One ‘add on’ option is to buy what’s called a return of premium rider, so that and the end of the term, if you are still alive, all the premium you have paid is returned. Term is generally what you buy when you are younger, because financial demands are greater when raising your family, and term life insurance is more affordable.
“Permanent” types of life insurance basically are whole or universal life. Once you buy these policies, they are in force until you pass away or cancel them. People tend these days to lean more toward universal life versus whole life because the premiums are flexible; you aren’t always locked into a specific amount per month. The downside with permanent types of insurance is that these policies are more expensive, because they have to be in place for an unknown length of time. These policies also build a ‘cash value’ which can be used in a number of ways, including supplementing retirement income.
Most term policies are able to be converted to a permanent policy without proof of insurability, which helps out later in life. You can make it for a lower face value, so you can still take care of your loved ones needs without having to qualify for on a health basis. The main reason to have life insurance is to buy your surviving spouse time to grieve and deal with life without facing losing the home. It gives them time to figure out what they are going to do, and not having to make huge financial decisions at a time when they can’t think straight. And that’s what matters.