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Questions and Answers
What is the primary purpose of term life insurance?
Which of the following is a key characteristic of term life insurance?
What is the main advantage of term life insurance over permanent life insurance?
What happens if the insured survives beyond the term of a term life insurance policy?
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Which type of term life insurance policy offers a partial refund of premiums if no claims are filed?
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How does the cost of term life insurance compare to permanent life insurance?
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What is the primary distinguishing feature of permanent life insurance?
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What is the cash value component associated with permanent life insurance policies?
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Which statement best describes the premiums associated with permanent life insurance?
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What type of permanent life insurance policy guarantees a fixed rate of return on the cash value and has level premiums throughout the policy duration?
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How does permanent life insurance help mitigate income tax liabilities?
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Which type of life insurance is recommended for individuals seeking temporary coverage?
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Study Notes
Types of Life Insurance: Exploring Term and Permanent Options
Life insurance is a crucial aspect of personal finance and estate planning. Understanding the different types of life insurance policies available can help you make informed decisions about protecting your loved ones financially. Two main categories of life insurance exist: term life and permanent life (or whole life) insurance. In this article, we will delve into these two categories and discuss their key characteristics.
Term Life Insurance
Overview
Term life insurance provides coverage for a specified period, usually ranging from 10 to 30 years. The primary purpose of term life insurance is to provide financial security during the insured's peak earning years. It offers a death benefit payable only if the person dies within the policy's duration. If the insured survives beyond the term, the coverage expires and no benefits are paid out.
Benefits and Drawbacks
Term life insurance is often the most affordable option due to its simplicity and lack of cash value accumulation. It can replace income lost upon death, pay off debts such as a mortgage, or provide for dependents' needs in case of an untimely demise. However, after the term ends, coverage may need to be renewed at potentially higher premiums if desired. Some insurers offer return-of-premium policies that refund a portion of the premiums paid if no claims are filed before the end of the term.
Permanent Life Insurance
Overview
Permanent life insurance, also known as whole life insurance, provides coverage for the insured's entire lifetime, provided premium payments are maintained. These policies typically include a cash value component that grows over time and can be borrowed against by the policyholder under certain conditions.
Benefits and Drawbacks
Permanent life insurance offers lifelong protection and can serve as a savings tool, with cash values that can be accessed during one's life through loans or withdrawals. However, it tends to have higher premiums compared to term life insurance. Whole life insurance guarantees a fixed rate of return on the cash value and has level premiums throughout the policy duration. Additionally, permanent life insurance can help mitigate income tax liabilities, since the growth within the contract is not subjected to federal income taxes.
In summary, term life insurance is suitable for individuals who require temporary coverage, while permanent life insurance caters to those seeking long-term protection and potential cash value accumulation. The choice between these two categories depends on your specific financial goals, needs, and budget. It is advisable to research multiple options from various providers to find the best combination of affordability and coverage that suits your unique situation.
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Description
Explore the differences between term life insurance and permanent life insurance, the two main categories of life insurance. Learn about key characteristics, benefits, and drawbacks of each type to make informed decisions about protecting your loved ones financially.
