Life insurance is unique. No investment or asset can provide the purchaser with such extraordinary leverage and the ability to create liquidity when, in many cases, it is most needed. Life insurance is one thing you don't want to purchase on the basis of the advertising alone, only to find out years later that you don't have what you intended. Life insurance is not a good way to strike it rich for "pennies on the dollar." It's not the surest way to leave a life of luxury for future generations of your clan. In fact, even though some life insurance policies are combined with a savings plan (in "cash value" policies), the savings plan is essentially independent.
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Premiums are paid periodically throughout the contract, and are generally level and constant over the life of the contract. Premiums are paid on an after-tax basis. Premium payments and coverage amounts can be varied year to year.
There are two types of life insurance, whole life insurance and term life insurance. Each type of insurance is used today and has its own unique benefits and drawbacks.
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Whole life is generally one of the most expensive types of life insurance. The premiums don't increase with age, which averages the cost of the policy over your life. Whole life is by far the most expensive form of insurance .but it may fit well for your financial situation. Whole life is also known as Ordinary or Permanent life insurance. The cash value is an amount of money that you are guaranteed to receive in the event of policy cancellation. A portion of the whole life premium is invested in your policy's behalf to build up a cash value, rather than just going for insurance protection.
Term insurance does provide significant levels of life insurance protection that may be appropriate for individuals or families that need a large amount of life insurance protection and currently have limited budgets. Term life insurance can also be combined with a permanent life policy to provide an appropriate level of coverage with a lower total premium outlay than a permanent policy would cost alone. Term life also provides the ability to convert to a permanent kind of coverage at a later time. Term insurance covers you and pays your designated beneficiary in the event of your death or certain other catastrophic events. It is not an investment policy; it has no cash value.
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