In order to receive life insurance coverage, you make payments called premiums to an insurance company. This company promises to pay your beneficiaries a death benefit when you pass away.



You have two options regarding the duration of insurance coverage. You can buy life insurance that protects you for a limited time period or that covers you until you die.

The cheapest coverage type is usually term insurance. You are able to buy assurance for a duration of say one year, five years or ten years. If you die during a specified term your appointed beneficiaries will collect a death benefit. If you survive a specified term the policy ceases and no payout is made.

A decreasing term life insurance policy is set up so that its face value decreases annually. In this way you receive the most coverage at the beginning of the policy and very little coverage at the end of its term.

Term insurance is typically less expensive because the premiums are lower than those of whole life assurance. Term life insurance works best when its duration is confined to a maximum of about ten years. Also, term policies do not gather a cash value that you can borrow against in the form of a policy loan.

Cash value policies combine a death benefit with tax-deferred savings. A portion of the premiums you pay piles up as a cash reserve. If you surrender the policy, you can get the cash reserve back. If you should die, the beneficiaries get the death benefit. Cash value insurance may be divided into whole life and universal life insurance.

Whole life is the most traditional type. The policy premiums stay the same for the length of the policy. The policy covers you until you die. It also hoards up a cash reserve. However, you have no power over how the money is invested.

Universal life is a more flexible policy type. You are able to change the amount of the premium by applying a part of the collected savings to help cover the costs. You are also able to increase the amount of the death benefit while the policy is active. However, this flexibility will cost you more money to implement.

There is normally a guaranteed rate of return on the savings portion for the first year of coverage. There is also a minimum in place for the duration of the policy.

You cannot borrow money against a term policy, since it does not gather a cash reserve. If you have a cash value policy, you may be able to borrow against the cash reserve. Loan rates on cash value policies are usually lower than the current market values. However, if you do not pay back the loan then the owed amount is subtracted from the death benefit disbursed at your death. Your beneficiaries will therefore receive less.

Life insurance may be available to you as part of your employee benefits. If not, then you may contact an insurance broker or financial planner to help you with finding the best life insurance policy for your needs. You may need to compare a few policies before selecting the right one for you.