Life insurance isn’t as complicated (or expensive) as one may think.

 

In it’s most basic form, life insurance is simply a contract between a person and a company. The individual, or “Insured”, pays the company a premium (money), and in return, the company promises to pay a defined amount of money to the Insured’s beneficiary(s) if he/she passes.

 

Throughout the years, insurance companies have come up with many different types of policies and added additional features in order to add value to their policies and provide additional selling points.

 

The two most common “types” of life insurance a Term and Permanent insurance.

 

Term is the simplest and least expensive. It is very similar to most other insurance products. An insured pays a premium in return for coverage over a certain term or period of time. Typical term lengths are 10, 20, 30 year terms but come in many other lengths as well.

 

Permanent (also known as Whole, Universal, Variable, etc) is a type of policy which lasts the insured’s “whole” lifetime as long as the premiums are paid. Permanent policies generally are considerably more expensive than a similar term policy, and often have additional features such as “cash value” that accrues inside the policy. You may also earn interest or be paid dividends based on your policy or ‘cash value’.

 

Many people ask, “Which is better, Term or Permanent insurance”? That question has been debated as long as the two types of policies have existed. This video is one of the best explanations I’ve found for which type is best, and when.