Term life is the simplest and least expensive type of policy. It’s pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whoever you’ve designated, upon a specific event – – your death. The death benefit and the policy limit are the same – – a $200,000 policy pays a $200,000 death benefit. The policy protects your family by providing money they can invest to replace your salary, as well as to cover final expenses incurred by your death. Term life insurance policies are not permanent policies, The premiums are only guaranteed for a specified number of years, such as 10, 15, 20, or 30 years.

Other types of life insurance provide both a death benefit and cash value account. Their premiums are higher than term life premiums, because they fund a savings account in addition to buying life insurance. These policies are often referred to as cash value policies. Cash value policies are permanent life insurance policies. They include: Whole life, Variable life, Universal life, Universal Variable life.

Whole Life:

It provides permanent protection for your dependents while building cash value account. With this type of insurance, the insurance company manages the policies various accounts.

• It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax-deferred cash accumulation. It provides a fixed premium that will not increase during your lifetime as long as you continue to pay the planned amount. It provides you the option to receive dividends from your policy or apply them to reduce payments.

Variable Life:

It provides permanent protection for your dependents while building cash value account. It is the type of life insurance with cash account flexibility for the more risk-oriented policy holder.

• It pays a death benefit to the beneficiary you name and offers you low-risk, tax-free cash accumulation. It offers you the right to borrow or withdraw from the policy during your lifetime. It allows the death benefit to vary in relation to the fund returns of the cash value account.

Universal Life:

It provides permanent protection for your dependents and is more flexible than whole or variable life.

• It pays a death benefit to the beneficiary you name and offers you low risk cash value account and tax deferred accumulation. It allows you to earn market rates of interest on your cash value account. It offers the right to borrow or withdraw from the policy during your lifetime. It allows you premium flexibility. It offers death benefit flexibility.

Universal Variable Life:

It is the type of insurance that gives you more control of cash value account policy features than any other insurance type.

It pays a death benefit to the beneficiary you name and offers you low risk tax deferred cash value options. It offers separate accounts for you to invest in such as money market, stock, and bond funds. It offers premium flexibility. It allows you to make withdrawals or to borrow from the policy during your lifetime. It stipulates that if you terminate the contract in early years you will receive less cash value total return than in a whole contract.

How Much Life Insurance Do You Need?

A good rule of thumb is to aim for a policy that will cover 2-10 times your annual income. If your yearly income is $50,000, then a policy from $100,000 – $500,000 should be sufficient. Again, it depends on your personal situation. Take into consideration the rate of inflation, potential college tuition costs, or large loans and home mortgages. If you have two children who plan on attending college, current tuition prices range anywhere from $10,000 – $30,000 per year, with the high end range focusing on private universities. Expect that range to increase anywhere from 5-10% within the next 5 years.

— Submitted by Mozhe Jalali