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Life insurance provides financial security to those people
who depend on your earnings. There are many available forms
of insurance, but they generally fall into two categories:
- Term Insurance
- Cash Value Insurance
Term Insurance
With term life insurance, the beneficiaries receive their
benefits only if the insured person dies within the period
of time specified in the policy. While this kind of life insurance
is usually the least expensive, the monthly premium may increase
as the policyholder ages. The various kinds of term life insurance
are:
- Yearly renewable term. Gives protection for one
year and must be renewed every year. Premium increases annually.
- Level term. Gives protection for a contracted number
of years. Premiums stay constant throughout the term.
- Decreasing term. Gives protection at a decreasing
amount of insurance each year for a fixed premium.
- Convertible term. Allows shifting to a cash value
policy.
Cash Value Insurance
Cash value offers protection as well as an investment option.
Because you are paying for protection, savings, and the insurance
company's administrative fees, cash value insurance is more
expensive than term insurance. The accumulated sum of the
savings, identified as the cash value, is tax-deferred.
- Whole life insurance. Gives life-long protection
and earns interest at a rate determined by the insurance
company. The rate is usually low for the first few years.
Most whole life policies have the flexibility for owners
to borrow from the cash value. The premium remains constant
after it is contracted according to age and health.
- Universal life insurance. Is commonly more flexible.
Premiums can be added after the first premium is paid, thereby
increasing the savings that also accumulate tax-deferred.
The amount of coverage may be adjusted without the insured
proving insurability. Borrowing is allowed. Interest is
paid according to the money market rates.
- Variable life insurance. Permits the insured to
decide how the savings are invested. A minimum death benefit
and the money earned beyond face value are usually guaranteed.
Savings accumulate tax-deferred. The cash values can decrease
as the value of the chosen investment decrease. Borrowing
is allowed.
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