Providing for your future and assuring your family’s financial protection are very important responsibilities in your role as parent, including making sure that you’re covered by life insurance and choosing the right insurance option for your family’s needs.
That’s why it’s important to do your research and to understand the benefits that different kinds of life insurance policies can provide.
This blog focuses on endowment, whole life and term life insurance policies, different types of life insurance policies that provide different benefits.
Endowment Life Insurance Policies
An endowment life insurance policy will grow in value over a time period that you select, such as 18 years, and pay out a lump sum on a specified date at the end of that time period – the maturity date.
The primary purpose of an endowment policy is to build cash value that can be used as a way to set money aside for a long-term goal, such as a college education. In addition, an endowment policy provides life insurance protection for the term – the time period – of the policy. If the unthinkable should occur before the policy matures, a death benefit is paid for the full coverage amount. The amount paid at maturity or as a death benefit is the same amount.
For example, the Gerber Life College Plan1 is an endowment policy that offers coverage amounts from $10,000 to $150,000 for between 10 and 20 years, for adults aged 18 to 60.
Whole Life Insurance Policies
A whole life insurance policy provides life insurance protection for the entire life – the “whole life” – of the policy owner, as long as premiums are paid. Whole life policies build cash value over time, which can be borrowed* against should a need arise for ready cash. Although this is a significant benefit, the main benefits are that the premium rate remains the same for the entire time, and that the policy continues for your whole life.
Policies such as the Gerber Life Simplified Whole Life Policy2 accrue cash value over time. The longer that you own the policy, the more cash value that your policy builds. You can borrow against that cash value should a financial need arise.
The added benefit of building cash value is one of the reasons that many people opt for whole life insurance coverage over term life insurance.
Term Life Insurance Policies
An alternative to life insurance policies that build cash value is term life insurance, which provides pure insurance coverage at the lowest cost, for the most protection for your premium-rate dollar. It’s sometimes called “level term” because a policy’s premium rate stays constant.
The disadvantage is that a term life insurance policy can last for only 10, 20 or 30 years, which may not match some peoples’ long-term needs.
Most term life insurance policies may permit the owner to “convert” their term life policy to a permanent whole life policy at some point during the policy’s term. This strategy allows you to have as much coverage as you need from Day 1 and to keep that coverage for as long as you want.
1 Policy Form ICC09-PIE, Policy Form Series PIE-09
2 Policy Form ICC13-SWLP, Policy Form Series SWLP-13
* Policy loan interest is 8%