Instead, the insurance company charges throughout the coverage period a higher premium than needed to pay out claims in the policy's early years. However, the costs to insure you can climb high as you age, especially when you live past age 80.Ĭharging a premium that increases each year would make life insurance unaffordable for many people in their advanced ages. In the case of traditional whole life, both the death benefit and the premium are typically designed to stay at the same (level) throughout the policy period. When you pay premiums for permanent life insurance, they go toward the cost of insuring you, your policy fees, and building cash value. Whole life products include several subcategories, including real traditional life, universal life, variable life, and variable-universal life. Premiums, as a result, can be higher than for term life policies. Unlike term life, these policies may build cash value, which a policyholder or their heirs can access under certain conditions. Permanent life, often called whole life insurance or cash value life insurance, provides coverage for the insured person's lifetime as long as premium payments are in good standing. What is permanent or whole life insurance?

Decreasing term life insurance reduces potential death benefits over the policy's term, usually in one-year increments.įor more details on the different types of term life insurance, click here.

Level term life insurance offers a death benefit that stays the same throughout the policy.

There are different types of term life, including level term and decreasing term. These policies can be more expensive upfront than standard term life insurance. However, some insurers have created term life products with a 'return of premium' feature, returning a portion of the premiums you pay if a claim is not filed before the end of the coverage term. Your premiums go towards your payout, making costs for policyholders comparatively lower than for permanent life insurance. When exploring life insurance options, you may encounter the word 'cash value.' Term life policies do not build cash value. Or, it can pay off a large debt, such as a mortgage, so that a surviving spouse or other heirs won't have to worry about making the payments. A death benefit can replace the income you would have earned during a set period, such as until a minor aged dependent grows up.

How term life coverage worksĪ term life policy may be the most simple, straightforward option for life insurance for many people. If the insured person outlives the original policy period, coverage renewal may be an option, but the premiums may be higher. Coverage expires when that period ends–hence the name–and therefore, a payout only happens if the insured's death occurs during the specified period. What is term life Insurance?Ī term life policy is purchased to last for a specified period, such as 1, 5, 10, or sometimes as much as 30 years. The following information below focuses on products as typically sold to individuals. Remember that insurance products for groups, policies that cover a group of people under a single contract (e.g., coverage offered through an employer), can differ from policies sold to individuals. Understanding the essential differences between these two main types of insurance can help you make coverage decisions according to your needs and goals.

When shopping around for coverage, you may come across various products that fall into two main categories: term life and permanent life (also commonly referred to as whole life). Life insurance can be an essential part of financial and legacy planning.

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