Answers to the Most Pressing Questions About Life Insurance

We’ve done our best to offer you some straight from the hip answers to the most frequently asked questions about how life insurance works, and that includes details about the differences between whole life and term life insurance.

What’s Covered By a Term Life Insurance Policy?

Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.

What Exactly is a ‘Paid Up’ Life Insurance Policy?

Paid-up additional insurance is a type of whole life insurance rider, and it lets the policyholder increase the policy’s ‘living benefit’ and death benefit. It does so by increasing a policy’s cash value. Paid-up additions can also earn dividends and allow their value to compound over time.

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What Happens to a Term Life Insurance Policy if You Don’t Die?

If you have what’s known as a ‘return of premium term life insurance’ policy, you can get back the premiums you paid. Owners of these ‘ROP’ policies, while they may pay higher premiums, are safe in the knowledge that they will be rewarded by the opportunity to get their money back in full if they outlive the term of the policy.

What Does a Life Insurance Policy Cover?

Life insurance basically pays out on death. It’s intended to help to provide for your loved ones when they can no longer rely on your income. The payout can be used to clear any outstanding debts, such as a mortgage, or to cover everyday expenses.

How Does a Term Life Insurance Policy Actually Work?

Term life insurance is also known as ‘pure’ life insurance as it pays out the death benefit if the policyholder dies within the defined term of the contract which can run from one to 30 years. If the named person doesn’t die? None of the premiums will be returned to the policyholder.

Is a Whole Life Insurance Policy Subject to Taxation?

If you withdraw cash from a cash value life insurance policy the amount of those withdrawals – up to your contribution to the policy – will be tax-free. This is known as a ‘basis,’ and it’s the amount of premiums you’ve paid into the policy less any dividends or withdrawals you’ve made.

What Are the Key Factors Which Define Term Life Insurance and Whole Life Insurance?

The dollars you pay into term life insurance premiums are only meant to provide a death benefit to your beneficiaries if you die during a specified term. Money invested in a whole life insurance policy via premiums builds cash value which can be used at your discretion while you’re alive or simply added to the ultimate ‘death benefit’ payout.

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