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Types of Life Insurance

There are two main categories of life insurance – term and permanent life insurance – and each has its merits. The type of insurance that is right for you will depend on your unique financial circumstances as well as your budget. With that in mind, here are the basic differences between the two.

Term Life Insurance

As the name suggests, term life insurance provides your loved ones with financial protection for a specific “term” or period of time (e.g., 10 or 20 years). Term insurance is the most affordable type of insurance, allowing you to get the greatest amount of coverage for the lowest initial premium. So if you have a significant need for coverage but not a lot of budget flexibility, term insurance is probably the right choice for you.

Here’s an analogy to help you understand how term insurance works. Think of it as renting a house rather than buying it. Let’s say that you purchase a 20-year, $500,000 level-term policy. If you die during the 20 years, your loved ones will receive the $500,000 death benefit. But if you outlive your policy, it will expire and your coverage will end. You essentially “rented” your policy for 20 years and were left with no “equity” when it expired. But that’s ok. It was affordable and it gave you peace of mind at a time when your family needed financial protection.

Permanent Insurance

In contrast with term insurance, permanent life insurance offers lifelong protection. As long as you pay the required premiums, your policy will remain in force. Permanent policies also have a savings component. They give you the ability to accumulate cash values on a tax-deferred basis, just like assets in most retirement and tuition savings accounts. In this sense, permanent insurance is sort of like owning your home. It’s builds up “equity” that you can access at any time and for any purpose. Some people will borrow from their policies to make a down payment on a home, to help pay for college or to fund a business opportunity. Just keep in mind that withdrawing or borrowing from your policy will reduce its cash value and death benefit if not repaid.

There are many different types of permanent insurance. Whole Life offers the greatest certainty. Your premiums will never increase, and the death benefit and rate of return on your cash values are guaranteed. Universal Life is generally the most affordable and flexible type of permanent insurance. It allows you to vary your premium payments, subject to certain minimums and maximums. Variable Life and Variable Universal Life allow you to allocate your premiums among a variety of investment options (e.g., stocks and bonds). You have the potential for higher cash values and death benefits if your investments perform well. But the opposite can occur as well.

It’s important to keep in mind that there’s a price to be paid for the extra features and benefits that you get with permanent insurance. Some permanent policies (e.g., Whole Life) can be considerably more expensive than term insurance when initially purchased.

Learn more about the specific products that we offer in the Products section of our site.

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Life insurance policies described, quoted, shown and illustrated throughout this website are not available in all states and may include those issued by: Allianz Life Insurance Company of North America, Minneapolis, MN and Allianz Life Insurance Company of NY, New York, NY are both members of Allianz Insurance Group, Minneapolis, MN; American General Life Insurance Company, Houston, TX; The United States Life Insurance Company in the City of New York, New York, NY, member companies of American General Life Companies; Assurity Life Insurance Company, Lincoln, NE; Aviva Accordia Life is a subsidiary of Global Atlantic Financial Group, West Des Moines, IA; Aviva Life and Annuity Company of New York, Melville, NY; American National Insurance Company, Galveston, TX; AXA Equitable Life Insurance Company (New York,NY); Banner Life Insurance Company is a subsidiary of Legal & General Group, Plc, London, UK; Legal & General America, Frederick, MD; Banner Life Insurance Company, Urbana, MD; William Penn Life Insurance Company of New York, Garden City, NY; Equitable Life and Casualty Insurance Company, Salt Lake City, UT; Fidelity Life Association, A Legal Reserve Life Insurance Company, Oak Brook, IL; First Central National Life Insurance Company, New York, NY and Household Life Insurance Company, Detroit, MI, member companies of HSBC Insurance; Genworth Life and Annuity Insurance Company, Richmond, VA and Genworth Life Insurance Company of New York, New York, NY, only Genworth Life Insurance Company of New York is admitted in and conducts business in New York, member companies of Genworth Financial, Inc.; Gerber Life Insurance Company, White Plains, NY; Great West Life and Annuity Insurance Company, White Plains, NY; Integrity Life Insurance Company, Cincinnati, OH and National Integrity Life Insurance Company, Goshen, NY are both members of Western & Southern Financial Group, Cincinnati, OH; John Hancock, Boston, MA; Liberty Mutual Insurance, Boston, MA; Lincoln Life & Annuity Insurance Company of New York, Syracuse, NY and The Lincoln National Life Insurance Company, Fort Wayne, IN, both insurance company affiliates of Lincoln National Corporation, whose marketing name is Lincoln Financial Group; MassMutual Life Insurance Company, Springfield, MA; First MetLife Investors Insurance Company, New York, NY, MetLife Investors USA Insurance Company, Irvine, CA and Metropolitan Life Insurance Company, New York, NY, all three members of the MetLife family; North American Company Life & Health, Chicago, IL and North American Company Life & Health of NY, Garden City, NY are both members of Sammons Financial Group, Chicago, IL; Principal Life Insurance Company, Des Moines, IA; Protective Life and Annuity, Birmingham, AL; Minnesota Life, St. Paul, MN; Pruco Life Insurance Company, Newark, NJ and Pruco Life Insurance Company of New Jersey, Newark, NJ, member companies of Prudential Financial, Inc., Newark, NJ; Prudential Financial, Newark, NJ; ReliaStar Life Insurance Company, Minneapolis, MN, ReliaStar Life Insurance Company of New York, Woodbury, NY and Security Life of Denver Insurance Company, Denver, CO, member of the ING VOYA family of companies; Securian Life Insurance Company, St. Paul MN; Symetra Life Insurance Company, Belluvue, WA; Transamerica Life Insurance Company, Cedar Rapids, IA; First Symetra National Life Insurance Company of New York, New York, NY; Vantis Life Insurance Company, Windsor, CT.

 

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