Life insurance, to many, is a necessary evil. Many policyholders swear by it to protect their families from loss of income and hefty debt obligations in the event of their untimely death. With several types of life insurance on the market, generally speaking, two varieties still remain the most popular: term and whole life, or "cash value" life insurance.
Types
Cash value life insurance are policies in which premiums are used to pay for the cost of insurance, while a portion is placed into attached investment vehicles that grow over time. Some popular cash value life insurance products include variable life, whole life, universal life and paid-up insurance. Despite minor differences, these insurance plans are essentially the same. All cash value life insurance policies contain a death benefit and a cash account that's added to when a client makes a premium payment.
Term life insurance is significantly different than its cash value counterpart. Term life insurance does not contain a cash value account. Premiums are used solely to pay for the cost of coverage. These premiums maintain the level of coverage for a specific "term." At the end of a policy's term, a new policy must be purchased.
Benefits
Both cash value life and term life insurance have their benefits. The most significant benefit of cash value life insurance is its ability to offer coverage for the entire life of the policyholder. Many people take advantage of buying this type of insurance when they are young when they need it most. Cash value accounts may also be borrowed against or drawn from during the life of the policy. Policyholders are also not required to pay taxes on any interest or earnings attached to cash value accounts.
Individuals and corporations also benefit from term life insurance. The biggest advantage of term life is the often very cheap premiums, especially when a person is young and healthy. It is possible, in many situations, to purchase significantly large face value amounts for monthly costs of $20 to $30. Term life is good for covering financial obligations that will eventually end, such as mortgages, automobile loans and education costs.
