Term Life vs. Cash Policies

These two types of policies differ in many ways. How do you know which works better for you? Well, it’s important to search around, talk to different agencies to see what they offer. These are a few things to keep in mind when going place to place to find the policy that is right for you.

Cash Value Policies

These policies consist of at least three different subtypes: universal life, variable life, and whole life. They are described further in the previous post. Cash policies are term life policies that also include savings plans. These policies are put together in such a way that they last the entirety of the customer’s life. Part of the premium that you pay is put toward the payments for the life insurance portion of the specific policy. Once you retire, then, the savings portion of the policy is used to continue payments on your life insurance.

You’ve then got money saved up in your plan. Now that you know you’ve got the money for it, you suddenly feel the drive to purchase a new car. Taking money from your plan for this purchase could end very badly. The money in this plan is specifically for your life insurance policy, so if you choose to take the money for your new car from your policy, it may end with the tax-shelter feature of your policy being taken away. If you have a car that still gets you from point A to point B with few to no problems, it would not be wise to risk damaging the status of your insurance policy just to have the hottest new trend idling in your driveway.

However, some of the cash value policies provide the customer with the opportunity to pay low interest rates if borrowing money is absolutely necessary. The downfall to this is that you as the customer are then paying the company to use money that was yours in the first place.

Term Life Policies

You as the customer have the right to determine just how permanent you want your particular term life policy to be. It may last a number of years; and if you are satisfied with the service, you may renew the policy when its term comes to a close. If you are unsatisfied, you have no need to be concerned with it any longer because its renewal is not mandatory.

This policy does not include a savings plan, though. In a way, that is a good thing because then you are not tempted to touch the money put aside that was originally intended for the payment of your insurance policy upon retirement.

Term life policies, unless otherwise noted, are not forced to release payment to those you have chosen to receive it if your death is questionable within the policy’s specified time frame. This time frame is usually the first two years of the term life insurance policy. Be sure to thoroughly take note of all the details listed in your policy’s contract so you are well aware of the terms and conditions of that policy.

Once you pass away, the loved ones whom you designated able to take advantage of your policy may do so if you have not violated any terms or conditions. They can receive this payout one of two ways: (1) they could receive payments at an income-like rate or (2) these people may receive a “lump sum,” once-and-done sort of payment.

Be sure to always do your homework before purchasing a life insurance policy, researching different companies and the premium rates they charge.