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Types of Life Insurance

When deciding whether life insurance is a good investment, it's first important to understand the types of policies you can purchase. There are several variations of life insurance plans, but they generally fall into two categories: permanent and term.

Term life insurance is designed to cover you for a set term, hence its name. For example, you may purchase a 20-year or 30-year term life policy.1 These policies function similarly to other types of insurance policies you may carry, like car insurance; you pay a premium each month, and if something bad happens—in this case, your early death—there's a benefit paid out.

 

Permanent life insurance, on the other hand, covers you for life as long as your premiums are paid. Certain types of permanent life insurance also can have an investment component that allows policyholders to accumulate a cash value. When you hear financial advisors and, more often, life insurance agents, advocating for life insurance as an investment, they are referring to the cash-value component of permanent life insurance and the ways you can invest and borrow this money.