| Term Insurance
Term insurance is the purest form of life insurance, consisting only of a
death benefit without the frills. It is for a fixed term varying from
one to 20 years, after which it must be renewed. If you die during the
term, your benefits are paid to your beneficiaries. Term life insurance
premiums are cheaper compared to whole life which makes it possible for you
to afford more coverage with the same amount of premium. |
| Disadvantages
* It is not permanent
* You may not be able to renew it above a certain age, e.g., above 70
years in some states. However, this may not necessarily be
disadvantageous since you may not need life insurance at that age because
your dependents will most probably have been able to establish on their own
by then. |
| Whole life insurance protects you throughout your whole life, i.e., it is
permanent. The insurance is also structured to include some form of
savings or investment feature in addition to the life insurance policy.
Because it is permanent and includes an investment feature, it is much more
expensive than term life for the same amount of coverage. There are many
types of whole life; the differences are mainly in the way your premiums
are invested to build up a cash value. The three basic types are the
traditional whole life, universal life, and variable life, though other
varieties like the variable universal life and interest sensitive whole
life exist. The three basic types are described below. |
| Variable Life, can invest your premiums in an array of securities that
supposedly have a better chance of delivering superior returns. The death
benefit depends on how the investments perform; however, the policy will
specify a minimum death benefit in case your investments completely pan
out. |
| Universal Life, differs from the traditional whole life by investing the
premiums in fixed-income securities that provide better rates than the
traditional whole life. You can choose to use the accumulated cash to buy
more death coverage or to pay the annual premiums, or both. |
