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Understanding Term, Cash Value Insurances

Understanding Term, Cash Value Insurances Posted on November 11, 2016Leave a comment

If there are people in your life who would be financially affected when you die, you should consider taking out a life insurance policy. Exactly what kind of life insurance and how much depends on your life situation.

The needs of a senior are very different than the needs of a young family. Some policies cost more than others; some have a built-in savings component. It’s important to understand your life insurance options, how they work, and what’s best for your situation.

Term Insurance:
Term insurance is the least expensive type of life insurance. It has a level death benefit, meaning the benefit that’s paid to your beneficiary remains the same through the life of your policy. Your policy premium is level for the term period, which can be five years, 10 years or more. Term policies don’t build up any cash value, or savings, within the policy.
Cash Value Insurance:
There are two types of cash value insurance: whole life and universal life. Whole life insurance has a level premium and a level death benefit. It gradually builds up cash value over time. It’s considerably more expensive than term insurance. Universal life insurance has flexible premiums, so you can pay more or less over time, although you’ll want to keep paying a minimum to keep the policy in force. If you pay more into it, it builds up savings faster. You can borrow against the cash value in either type of policy; you can withdraw cash value from a universal life policy, as well.
Determining Your Need:
How much life insurance you need depends on your individual situation. Seniors should account for final expenses, and any other debt they may leave behind. If you have a partner, you should consider whether his income will need to be supplemented. If you have children, you should include their child care needs and college education. If there is a religious institution or charity that’s special to you, you may want to include that as well.
How to Purchase:
Your state department of insurance can provide you with a list of companies licensed to do business in your state. You may also want to get referrals from a trusted friend, family member or financial adviser. Contact the companies you’re interested in and get a quote for the amount of insurance you need. You may be able to purchase the policy online, over the phone or in person; just be certain to review any paperwork you sign and any policy documents you receive.

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