Life insurance is most commonly purchased to provide death benefits to a named beneficiary upon the passing of the insured individual. All life insurance policies provide death benefits to the beneficiaries, but some types of life policies also can accumulate cash value. These policies, which include whole life and universal life, accrue cash value with each payment. The insured may borrow against the cash value with a loan, or the entire policy may be surrendered. The loans typically have affordable rates and terms, and there typically is not a limitation regarding how the funds can be used. Commonly, the funds may be used for a down payment on a house, to make home improvements and for other similar purposes. Because of the ability to accumulate value, these types of life policies may be viewed as an investment or a financial asset.
In addition to this difference in the different types of policies, the term of the policy can vary. Most commonly, a term life policy will have a term length between 10 and 30 years. A universal or whole life policy will not expire at the end of a fixed term. Instead, these are policies that may provide coverage and benefits for the life of the insured. Because of this, some people will purchase these policies to provide a legacy or inheritance to their loved ones.
The rates for the different coverage options can also vary significantly. The age and the health status of the insured at the time the policy is purchased are two main factors that drive cost. However, the type of coverage selected and the term length will also impact the rate. Generally, a short, fixed term policy will have the lowest rates. The more expensive policies will be cash value policies.
Because of the variations in coverage needs and in how the different types of policies may be used, it is not uncommon for some individuals to have multiple policies in effect. For example, some individuals may purchase an affordable term policy for short-term coverage needs, but they may also purchase a whole life policy for financial planning purposes for long-term goals. Our knowledgeable insurance agents can assist you further with your insurance buying and planning needs.