There are two main types of life insurance policies. You can get a term policy or a permanent one. Permanent ones have different types of policies within them, but what's the difference between these two main types? Here's a look at the two types to help you decide on the best one for you.
A Period of Time Coverage
Term life insurance will only cover you for a period of time in your life. On the other hand, permanent options are for your whole life, whether you live 10 years or 60 years.
With term policies, your payout will only happen if you die within this time period. You have full control over the term that you set it, and you can buy another policy after it runs out if you live past that term. Nerd Wallet states that the most common time period for term policies are 20 years, but you can opt for shorter or longer depending on your age and needs.
Getting Money After Death
The insurance policy will pay out after death, but the amount differs between the two types of policies. With permanent options, you will get back what you pay in over the time period as long as you don't borrow against it. If you die within a few years of having the policy, your family may not get that much to afford outgoings, funeral costs and debts.
Term policies will offer the same payout, no matter when you die within the policy term. It is very similar to your car insurance or home insurance: a claim is made after your death and the amount is paid out depending on the policy requirements.
Borrowing Money from the Policy
With a permanent policy, there is the option of borrowing money from it. This isn't something you can do for term life insurance. It works out as a future financial decision if you get it when you're young, allowing you to fund a wedding, college fees or a mortgage.
It is worth noting that if you borrow money from it, you will reduce the amount your family will get after death. However, there is also the ability to earn dividends from some policies, which could help with financial matters during your life.
You can only make the best decision for you and your family's needs when it comes to life insurance. Look at all your options and consider the pros and cons of each. To find out more, speak with someone like Amberg Insurance Center Inc.