Choosing A Life Insurance Policy

People often get a life insurance policy to ensure that their loved ones will be taken care of in case of a untimely death. A life insurance company generally offers two types of insurance policies: Term Life Insurance and Permanent Life Insurance.

Term Life Insurance
Term Life Insurance provides death protection for a stated time period, or term.

Good choice for short-range goals

Provides temporary life insurance protection on a limited budget

Premiums increase when the policy is renewed

Can be converted to a permanent policy at any time prior to age 75 (subject to established minimums)

Permanent Life Insurance
Permanent life insurance provides death protection for as long as you live.

Good choice for long-range goals

Guaranteed cash values can provide money later on to help with temporary needs or emergencies

Level premiums

Not sure what type of insurance would be best for you?
When deciding which type of life insurance would best meet your need, four basic features should be considered:

Death Benefit

Premium

Cash Value

Duration of Coverage

Note: A combination of term life insurance and permanent life insurance is often appropriate.

Death Benefit

Term life insurance provides a death benefit for a stated period of time

Permanent life insurance provides a death benefit for as long as you live

Premium

Permanent life insurance premiums are generally level and payable for life

Term life insurance premiums will increase over time and are payable for a specific period of time

Term life insurance premiums generally increase at each renewal

Cash Value
Guaranteed Cash Values:

Term life insurance does not accumulate cash values

Permanent life insurance accumulates guaranteed cash values

The growth in cash values is tax-deferred under current federal income tax law

You may borrow against the cash value as a policy loan at the current policy loan interest rate

Borrowed amounts reduce the death benefit and cash surrender value

Amounts withdrawn that exceed the cost basis of the policy are federally income taxable

Dividends:

Term life insurance does not earn dividends

Permanent life insurance policies may be eligible for dividends

Dividends are a return of premium and are based on actual mortality, expense, and investment experience of the company

Dividends are not guaranteed, since actual experience is not known in advance