Life insurance is a contract between the policyholder, the insured (if different from the policyholder), and the insurance company. Policyholders pay a monthly premium in exchange for the financial protection that insurance provides. If the insured dies while the policy is in force, the beneficiary receives the death benefit. The death benefit may include the face value and payments from other features of the policy.

term life insurance

Term life insurance provides coverage for a specific period of time, usually between 10 and 30 years, although some insurance companies offer coverage for up to 40 years. The face value initially selected by the policyholder remains fixed for the duration of the policy.

Term insurance is usually the most affordable type of life insurance. However, the older you are when you purchase insurance, the higher the premiums you will have to pay. Of course, age is just one variable that life insurance companies consider when issuing a policy.

Term insurance is generally less expensive than term insurance, such as whole life insurance, because it does not have a savings or investment component. It also reduces premiums because coverage is guaranteed only if the insured dies during the specified period. When the period ends, the coverage also ends.

Some term insurance policies can be renewed or converted to permanent coverage. In such cases, the insurance company may adjust the face value depending on the policyholder’s age and current health status.

whole life insurance

Whole life insurance is permanent life insurance that lasts for the life of the insured, as long as the premiums are current. The lifetime face value remains constant, or fixed, throughout your lifetime.

Permanent life insurance policies, such as whole life insurance, have a cash value component in which a portion of the premiums paid are applied to an investment account that grows on a tax-deferred basis. This acts as a forced savings account and can be borrowed or withdrawn depending on the situation. For these reasons, whole life insurance is generally more expensive than term insurance. Although the face value is fixed, the benefits increase over time as more premiums are paid.

universal life insurance

Universal life insurance is another form of permanent protection that offers flexibility in premium payments and adjustable face value.

For example, policyholders can increase or decrease the face value based on their needs at the time. However, policyholders should discuss any changes with their financial advisor first. Increasing the face value may result in higher premium payments. Similarly, reducing the face value may reduce the opportunity for cash value growth of the policy.

Those looking for this type of life insurance product should note that the specifics of these product features will vary depending on the insurance company they consider.