Life insurance is the term across which we come everyday but all of us do not know the benefits of it. While others who know its importance do not care for it. But if you have people depending on you financially and for daily care, such as children or elderly parents, life insurance is a necessity.
There are two basic types of life insurance: term and permanent. Term insurance as the name suggest is purchased for a period of time, say 10 years or 20 years, and it’s far cheaper than permanent insurance. Permanent insurance is permanent in nature such as whole life insurance, covers you until the day you die, and as long as you pay your premiums, you will continue to have coverage.
Looking back to term insurance, term insurance is the simplest kind of insurance available. You pay a monthly premium for a certain amount of coverage – it can be any amount. You choose how long the coverage will last, such as 10 or 20 years. Coverage continues for the length of the policy, as long as you pay the premiums. Your near ones would use the money to pay such items as an outstanding mortgage, upcoming college costs or basic living expenses that your salary would otherwise have covered.
Term insurance is good for those who want more coverage in less money but are not able to afford premium of permanent policies. As long as life of the term policy is available you can enjoy the benefits. Suppose you have a term of 10 years and you die within that period then your beneficiaries would inherit the full amount of the policy. If you die after 10 years then it is of no benefit.
Permanent insurance is also known as cash value insurance, because cash value is build to the policy as you pay the premiums. Unlike term insurance, in permanent insurance part of your premium pays for the insurance, and part is invested in an account that accumulates interest in your name.
The plus point is that permanent insurance sticks with you as long as you pay the premiums. The insurance company can’t cancel the policy for medical reasons as it happens in case of term insurance.
Permanent insurance is expensive as compared to term insurance. Not all can afford to pay its premiums. Thousands of dollars are to be paid yearly in case of permanent insurance verses just few hundreds of dollars in a year in case of term insurance.
Both the insurances have their advantages and disadvantages. Depending upon the need any of the insurance can be purchased. Permanent insurance is expensive so all can not afford to pay the premiums every year. Most of the people purchase term insurance and renew it at the time of renewal.