Types of Life Insurance
There are two types of life insurance: term insurance, and life insurance policies that have cash values. There are hundreds, maybe thousands, of different varieties of insurance policies within these two types.
Depending on your age and your health, the newer life insurance products may provide you with more benefits for the same money. You should contact your life insurance agent to find out whether you would be better off converting your existing policy to one that gives you more bang for your buck.
Term insurance is life insurance that has no benefit associated with the policy other than a death benefit. You pay a premium for the term and, if you die while the term insurance is in effect, the insurance company pays a death benefit to the person or persons you named as your beneficiaries. If you don't die while the term insurance is in effect, you have nothing left at the end of the term other than the peace of mind of knowing that if you had died, a death benefit would have been paid to your beneficiary.
Life Insurance with Cash Value
A life insurance policy with cash value has two components. It has a death benefit and cash value. In the old days, the insurance company guaranteed a minimum rate of return on the cash component of the policy. If you decided to terminate the policy, you could withdraw at least the guaranteed cash value. If the insurance company earned more than it expected, your cash value could be larger. The variety of insurance products that have a cash value component has increased dramatically over the years.
Trying to direct insurance proceeds through your will or trust will not work. The insurance company is bound by the contract to pay the proceeds in accordance with the beneficiary form you have signed.
There is more emphasis on the cash value of life insurance products than there was in the past. You should shop around. Contact several agents. You will be surprised to learn how many different products are available.
The insurance companies have become very creative with the options you have regarding the cash value component. For instance, the cash value of some policies is being invested and the growth is being used to pay future premiums. Other policies are using the growth on the cash value to provide a larger death benefit. The goal of yet another type of policy is to maximize the investment yield on the cash value by investing the cash value in mutual funds that own stock to create a larger cash value for you to withdraw.