Why term life insurance might be right for you
When considering life insurance, term life insurance is a good first choice – especially for families just starting out. Term life insurance is an easy, affordable way to provide financial peace of mind for you and your family. It helps fill the gap left by the loss of your income and protects your assets.
Term life can also cover specific financial obligations that will disappear over time, such as a mortgage, wedding expenses, college tuition or loans. In short, term life insurance provides an excellent answer to the question: How will your family manage financially if you die prematurely?
Because term life insurance is temporary and does not typically build cash value, coverage is generally less expensive than permanent coverage. There’s no commitment, either. If you decide to end your coverage before the term is up, you can simply stop making payments and that’s it – there’s nothing more to pay or any other obligations. The icing on the cake: with Transamerica, you get a level of coverage you can count on at competitively priced rates.
Permanent life insurance
Permanent life insurance comes in two basic forms—whole life and universal life. Both forms are intended to provide coverage for as long as you live, provided you make your payments as described in your policy.
Why permanent life insurance might be right for you
Permanent life insurance doesn’t limit your death benefit to a specific span of time. There’s always a payout, regardless of when you die. What’s more, permanent life insurance can build a cash reserve (known as cash value), which grows with each payment you make. Because of these valuable benefits, premiums for permanent life are usually higher than those for term life. Keep in mind: permanent life insurance requires a long-term commitment on your part, as it takes time for your insurance company to invest and grow its cash value. Cancelling your policy after only a few years can be expensive.
Cash value and the differences between whole life and universal life
With whole life insurance, you can usually make premium payments in the same amount over the length of your policy. Each payment goes toward covering the cost of your insurance and growing the cash value needed to fund the final payout to your beneficiary. However, your cash value will eventually reach a point where you can borrow money from it. It will be considered a loan, so you will be charged interest. If you don’t repay the loan (and you don’t have to), the insurance company will deduct the outstanding amount from the final payout to your beneficiary.
Universal life is all about premium payment flexibility. After your cash value grows to reach a certain level, then you have some options. You can keep paying at the same rate and use your cash value to increase your death benefit. You can keep your death benefit the same but use your cash value to lower your ongoing premium payments. You can even reduce your death benefit and use your cash value to skip some payments. If you’re looking for some flexibility in choosing the amount, method and timing of your payments, universal life is probably the way to go.