Often Confusing But Easily Explained
Life Insurance is designed to take the place of your income should you pass away pre-maturely. Your future income is lost and there needs to be a lump sum present value of dollars to replace that future lost cash flow. There are two types of life insurance - permanent and term. Neither type is right for everyone and it is important to determine how much coverage you need before figuring out which type of insurance to own. Permanent insurance lasts until the day that you die. It is analogous to owning a home. There are higher initial payments but ownership of the product. Term Insurance is like renting an apartment. Lower initial payments but eventually higher payments and no ownership of the product until death. If you need insurance until you die then permanent insurance is the only solution. If you need life insurance coverage only during the high risk period of your life than term insurance is the answer. This higher risk time period might be while your kids are young, while you are saving for college and retirement, and when you have a mortgage payment that must be met for the next 15 to 30 years.
"There are two types of life insurance - permanent and term. Neither type
is right for everyone and it is important to determine how much
coverage you need before deciding on which type of insurance to own."
The main types of term insurance include level-premium products whereby the premiums stay the same for 10,15,20, or even 30 years. There is also a term product whereby the premium increases every year as you get older. This is known as YRT or Yearly Renewable Term. The permanent type of life insurance include universal life, variable life, and whole life. There are many variations of each of these type of permanent coverages. One of the more popular types of permanent insurance is the Indexed Universal Life product or IUL. IUL's provide investment return in market like investments with protection from the downside of the market. They also offer permanent life insurance protection. Returns in a well constructed IUL product can return 5-6% after tax returns over the life of the policy and some returns can be even higher.
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