Term Life Insurance and Permanent Life Insurance, How Should We Choose From The Varieties Available?
With the rapid growth of the economy, people are becoming more and more aware of insurances. Especially in times of global economic turmoil, it accelerated people’s plans to purchase life insurance. The number of applications for life insurance has skyrocketed.
There are many insurance companies in the market, each with different types. What are the differences among them? How should we choose?
There are mainly two types of life insurances: Term Life Insurance and Permanent Life Insurance. The latter is subdivided into:
1. Whole Life Insurance
2. Universal Life Insurance
3. Variable Universal Life Insurance
4. Index Universal Life Insurance
Term Life Insurance
Term Life insurance covers only for a certain period (usually 10-30 years) and is temporary, mainly for death benefits. If the policyholder dies within the time limit, the compensation can be paid. Otherwise, the claim cannot be paid.
Most people who buy term life insurance have a lot of debt or little savings. If an unexpected death happens, the family will not be forced to sell their home or make other financial sacrifices. The premium of Term Life Insurance does not change during the life of the policy. When the premium rate is locked in, the younger and healthier the policyholder is, the less premium they will have to pay.
Whole Life Insurance
Whole Life Insurance covers the whole life of the policyholder. It includes an investment component. Whole Life insurance intends partly to provide a living guarantee for the family after death, like Term Life Insurance. The premium for Whole Life Insurance is an investment with cash value. Like other investments, the cash value of the policy can generally be used to secure a loan with a favorable rate.
The insurance company will pay regular dividends based on the company’s profits, while the dividend payout amounts are not guaranteed. As time goes on, the cash value of the insurance policy increases. The premium is fixed and relatively expensive, with little flexibility and very little insurance leverage. The borrowing rate of cash value is typically 4%-6% per year and needs to be repaid.
To purchase life insurance, it’s best to apply as early as possible before you get sick. Different insurance companies have different purchasing policies, and some require your medical history. Pacific Life Pacific Life no longer accepts policies for old people ages above 71; Whole American Life Transamerica doesn’t accept policies for people ageing 75 and older. However, Whole American Life has now relaxed the limitations for policies up to $1 million, and as long as your medical history is good, a medical exam is not required.