Term insurance is a type of life insurance coverage that covers you for a certain period of time. You'll have a fixed payment for a 10, 15, 20, 25, 30, or 35 year term. If you were to pass away during the term, your beneficiary will recieve proceeds in the amount of coverage you elected. Premiums are low but your coverage lapses at the end of the term if you are still living and there is no savings component. You are paying for the peace of mind for a fixed period of time. Great for those with limited income.
The death benefit is the financial support or payout that your beneficiary receives when you pass. The death benefit is equal to the amount of coverage you elect or purchase. Depending on the type of policy you choose, the death benefit can be level, increasing, or decreasing.
A return of premium policy usually lasts for a certain term or period of time. Just how it sounds, a Return of Premium (ROP) policy issues a check back to you in the full amount of all premiums paid at the end of the term if still living and the coverage ends. If you pass while coverage is in force, then your beneficiary will receive the elected death benefit.
Permanent life insurance is any type of insurance policy that lasts for your entire lifetime. Term policies pay your beneficiary "IF" you die, while permanent policies pay your beneficiary "WHEN" you die. Permanent life insurance policies also usually include a cash value component.
The two prevalent types of permanent life insurance policies are Whole Life (WL) and Universal Life(UL). There are also sub types under the universal life which are Universal Life (UL), Guaranteed Universal Life (GUL), and Indexed Universal Life (IUL). The third type of permanent policy which is less common is Variable Universal Life (VUL).
Cash value is an equity building component in a permanent policy that allows you to store, grow, and accumulate cash, which you have access to throughout the life of your policy. You can access your cash value tax free through policy loans. Depending how you intend to use the policy you may or may not want to pay the loan back. Your death benefit is used as collateral. When you pass, the cash value is absorbed by the insurance company and the death benefit is paid out to your beneficiary minus any outstanding loan balance. The death benefit is always greater than your cash value. Term policies do not have a cash value component.
An annuity is a long term investment product issued by an insurance company that is designed to help protect you from outliving your income. An annuity takes a specific amount of capital paid into over time or in one lump sum to establish a contract that will provide a specified income for a fixed period of time or guarantee a specified income for the rest of your life. Depending on the product you may or may not be able to name a beneficiary for any remaining proceeds in the contract when you pass.
Living benefits allow you to access your death benefit early if you fall ill. There are three type of living benefits, which are usually included as riders on a life insurance policy. These are Critical, Chronic, and Terminal Illness Rider. In these scenarios you can take advantage of the death benefit while you are still alive. Not all policies include living benefits.
A rider is an optional coverage or feature that can be added to a policy for an additional cost. There are many different riders and the offerings vary by company and product.
