Life insurance is the foundation of family financial planning. Life insurance can protect your family against the risk of financial uncertainty in case something happen to you. If you have spouse, kids, mortgage, car payments, and other bills, if you were suddenly to die, would your family have enough money to keep the house, car, pay off credit card debt, and send your children to college?

Life insurance also can help your estate planning, tax-deferred investment and tax-free death benefit to cover your final expenses and potential all kinds of tax.

Types of life insurance

Term life is the simplest and (typically) cheapest form of life insurance. Term life is designed to provide coverage for a fixed period of time, such as 5, 10, or 20 years. The premium for the term policy is guaranteed for the duration of the term; if it is a renewable policy, the premium will increase with each renewal. The premium of Term insurance starts low but will go very high when you turn to older age and will cease anyway when you are 75 to 80 according to different insurance companies.

Whole life is designed to provide you life coverage until your death. Unlike term life, there are no fixed periods for whole life coverage. Whole life is sometimes referred to as “cash value” insurance because it builds cash value over your lifetime. Whole life coverage contains both investment and insurance components. The investment portion invests your premiums, earns interest, and accumulates a cash value. On the other hand, the policy also has a stated insurance coverage amount that is paid upon the death of the insured. Most time, the insurance company in charge of the investments and announce the dividend rate every year.

Universal life is a popular option that acts like whole life. It is a renewable policy — the investment component, premiums, and death benefits can be renewed and changed based upon the policy owner’s needs. Most time, the policy owner in charge of the investments: you may move your money between different mutual funds or GICs or other investments the insurance company provided to you. The premiums, unlike whole life policies, can be paid out of interest from the accumulated savings.

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