A life insurance policy is a contract with an insurance company. In exchange for premium payments,
the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon
the insured's death.
Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance
generally provides protection for a set period of time, while permanent insurance, such as whole
and universal life, provides lifetime coverage. It's important to note that death benefits from all
types of life insurance are generally income tax-free.
Type of
Life Insurance |
Purpose |
Protection
Period |
Cost Differences |
Premiums |
Beneficiary
Proceeds |
Equity |
| Term Life |
Income replacement during working years |
Designed for a specific period, such as 20 or 30 years |
Typically less expensive |
Usually Fixed |
Generally income tax free to beneficiaries |
Does not build a cash value |
| Universal Life |
Wealth transfer, income protection and possibly tax-deferred wealth
accumulation |
Flexible, generally, for a lifetime |
Generally more expensive than term |
Flexible |
Generally income tax free to beneficiaries |
May build a cash value |
| Whole Life |
Wealth transfer, preservation and tax-deferred wealth accumulation |
For a lifetime |
Generally more expensive than term |
Usually Fixed |
Generally income tax free to beneficiaries |
Usually builds a cash value |
| Final Expense |
Protection of family members from end of life expenses |
For a lifetime |
Low premiums |
Usually fixed |
Generally income tax free to beneficiaries |
Does not build a cash value |
