Part of constructing a complete financial plan is selecting a life insurance policy that fits your needs. The knowledge that your loved ones will be able to care for themselves after you have passed away, can provide great peace of mind.
These days, the line between life insurance policy and investment vehicle has become significantly blurred. There are many complex policies available, which can grow in cash value, provide a source of income in retirement and even be borrowed against. The policies advertised today offer many attractive features, but understanding how they work and what they will cost you to own can be confusing.
Two basic types of life insurance
There are two basic types of life insurance:
- Permanent Insurance
- Term Insurance
Permanent Insurance provides an individual with coverage until they are deceased, as long as the premium payments are made on time. This kind of policy has a savings or investment component, which means it is capable of building cash value. It can also be borrowed against.
Term Insurance, as the name implies, provides coverage for a specified period of time. This period could be 15 years, 20 years or more. Should you pass away during the specified coverage period, your beneficiaries will be able to collect on the policy. This kind of policy does not build cash value, but is generally much less costly than Permanent Insurance.
Which type of Life Insurance is right for you?
In most cases, it is most sensible to separate out one’s investments from one’s insurance policies. Doing so, one can cut out many unnecessary fees and limitations on their investments. Of course one should still maintain coverage to protect against the unexpected. For this purpose Term Insurance is most often a suitable and cost effective option. There are, however, instances where Permanent Insurance makes the most sense. As with all financial planning, this must be determined on a case-by-case basis.
Our top investment advisors can help you analyze your situation and determine which type of insurance is right for you.