Posted by Shu Zheng
Posted by Shu Zheng
Life insurance is classified into two categories – temporary and permanent. Temporary life insurance is also known as term insurance, and the permanent insurance is the combination of universal, whole life, and endowment life insurance. When people purchasing a life insurance, it is important to know the types of insurance as well as some bargain strategies.
Term insurance, which provides coverage for a specific period of time, does not accumulate cash value. The three key factors to be considered in term insurance are: face amount (protection of death benefit), premium to pay (cost to the insured), and length of coverage (term). Two common types of term insurance include annual reward term and mortgage insurance (Wikipedia).
Permanent insurance remains in force until the insurer fails to pay the premium. The policy cannot be canceled for any reason except fraud in the application, and the cancellation must incur within a specific period of time required by law. Unlike term insurance, the permanent one carries cash value, and the owner can access money by withdrawing, borrowing cash value, or surrendering the policy. Now as mentioned earlier, the permanent insurance exists in three basic forms: whole life, universal, and endowment. Whole life is the most common one among the three. The advantages of this policy include guaranteed death benefits, cash values. Even though premium is higher than terms, but the accumulative premiums are equal if policy is kept in force. Universal insurance is a new insurance product with greater flexibility and higher interest return. It exists in forms of interest-sensitive, equity-sensitive, and variable universal, all of which have close relationship with the market (Wikipedia).
When buying a life insurance, the agents generally want to push the sell of whole life because of high premium and commission. Although insurer can keep whole life policy for the rest of their life and build up cash in them with tax-free advantage, the high fees and commissions built into whole life along with surrender charges often leave people with little cash value after 10 or 15 years. So it is generally recommended for the average public to buy 20- or 30- years term policies since it is no long difficult to find (Buying Strategies). However, another factors such as health, smoking condition, income and ages of family members also have to be taken for account in terms of the coverage length. When it comes the time of purchase, people can consider providers such as Metlife, Prudential Financial, New York Life Insurance, TIAA-CREF and so forth (Which Companies).
Buying Strategies, (n.d) CNN Money, Jan. 26, 2009. http://money.cnn.com/magazines/moneymag/money101/lesson20/index3.htm
Which Companies, (n.d.) Insurance Information Institute, Jan. 26, 2009.