Before you make a decision to purchase a policy, you should familiarize yourself with the types of life insurance available and understand the differences between various policies. Should you be shopping for a protection or investment life insurance policy, a temporary term or whole life policy? Some of these terms can be confusing, so lets take a look at what they mean to determine what fits into your financial plans.
Protection Life Insurance Policies
Also sometimes referred to as pure insurance, a protection policy is designed to provide a benefit in the event of a specified event, most often in a lump sum payment. A common type of protection policy is term insurance.
Term Insurance is exactly what it sounds like: a contract for a specified term (10 or 20 years, for example) that offers death benefits only. If you are still alive and well when the term expires, you do not receive any benefits.
This is also sometimes called temporary insurance. It would be appropriate if you only needed to ensure benefits for a temporary amount of time (for example, until your children have graduated from college).
Investment Life Insurance Policies
This type of policy combines an investment product with pure life insurance to build cash value, much like an IRA or money market account. With this option, you can get back the money you paid into premiums even if you do not make a death claim: you may cash in the policy or borrow against it.
Some common types of investment policies are whole life, universal life and variable life insurance. Permanent insurance falls into this category.
You should consult with an insurance professional and run an analysis on the costs and benefits of both temporary and permanent policies to determine which option is right for you.
