Term life insurance is temporary life insurance. It can be purchased in 1-year, 5-year, 10-year, 20-year, and 30-year increments. In the short run, term life insurance is the least expensive type of life insurance. With term life insurance, you are paying for only the insurance and you do not accumulate any cash value.
The biggest advantage to buying term life insurance is that, at younger ages, you can purchase the most amount of life insurance for the least amount of money. However, at later ages, term life insurance becomes prohibitively expensive. The reality is that, if you should live past age 75 or 80, you will not have the insurance that you had at the younger ages. It is simply too expensive to keep if you can find it at all.
The most common uses for term life insurance are to have a large amount of life insurance while you are young and have a family that is dependent on you, and to protect your family against obligations like mortgage loans and other financial obligations.
Whole life insurance is permanent life insurance. Once you purchase whole life insurance, you are guaranteed that your life insurance premium will remain level for the rest of your life. Once a whole life insurance policy is approved, you will never have to qualify for life insurance again.
In the short run, whole life insurance is the most expensive type of life insurance. In the early years of a policy, the premiums are higher than term life or universal life. However, because of the fact that the rates are guaranteed for life, in the long run, that higher initial cost levels off and, in many cases, becomes the most cost-effective type of life insurance.
Whole life insurance policies accumulate a cash value which can offer several possible benefits to you. The cash value can offset the cost of insurance and, after a number of years, can even generate enough income to pay the premiums for you in the later years. It can also increase the amount of insurance you have. Either way, accumulating a cash value can offer you opportunities that term life insurance can’t.
Universal life insurance is a type of life insurance that accumulates a cash value and is permanent. However, the values and accumulations are not as secure as with whole life insurance.
As with whole life insurance, once you purchase a policy, you never have to qualify for life insurance again. The policy is guaranteed to be in force as long as you pay the premiums.
The annual cost of universal life insurance is usually less than whole life and, as with whole life insurance, in the short run, is more expensive than term life insurance. However, when you average out the cost over your lifetime, universal life insurance can be much less than term life insurance.
If the policy is presented properly, your premiums will remain level for your lifetime and will accumulate a cash value that can enable you to let the internal values pay premiums for you or increase the amount of insurance you have.