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What is Term Insurance?
Term life insurance is a very straightforward product that makes a promise to pay your beneficiaries the agreed-upon amount if you are to die, but only if you die within a specified length of time or “term” such as 10 or 20 years.
Why would I need Term Insurance?
Term insurance provides temporary coverage for temporary needs, such as short-term debts or mortgages. Most people purchase term insurance in their younger earning years as you are typically most vulnerable as you have young kids or a new mortgage. These needs tend to only last a couple of decades. After that, you are planning retirement, and most of your debts if not all are paid off. Term provides an inexpensive way to protect your family during this phase of your life. Term insurance policies build no value over time and can not be invested or surrendered for cash. This is what keeps your premiums lower.
What is permanent Insurance (Whole Life, Universal Life or Term 100)?
Permanent life insurance covers you for your entire life. There is almost always an investment or cash value component associated with your policy and it is a lump-sum tax-free payment upon your death. These products are used to protect lifelong needs such as estate tax liabilities, care of disabled children, liquidity for closely-held businesses, or funeral expenses.
In some cases, you can borrow against the cash value component of your permanent life insurance policy. Or, you can simply leave the life insurance benefit to your loved ones as the beneficiaries, the same as any other type of life insurance. Permanent plans do have a higher premium structure because they are guaranteed to be paid to your beneficiary.