Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of a specific period which can be from one to 20 years. The premium rates increase at each renewal date. Many policies require that evidence of insurability be furnished at renewal for you to
qualify for the lowest available rates.
Permanent insurance provides lifelong protection and is known by a variety of names, described later. As long as you pay the necessary premiums, the death benefit always will be there. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, it could be the wrong type of insurance for you.
Most permanent policies including whole, ordinary, universal, adjustable and variable life have a feature known as "cash value" or "cash surrender value". This feature, which is not found in most term insurance policies, provides you with some options:
You can cancel or "surrender" the policy "in total or in part" and receive the cash value as a lump sum of money. If you surrender your policy in the early years, there may be little or no cash value.l If you need to stop paying premiums, you can use the cash value to continue your current insurance protection for a specific period of time or to provide a lesser amount of
protection to cover you for as long as you live. Usually, you may borrow from the insurance company, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit.
The cash values of many life insurance policies may be affected by your company's future experience, including mortality rates, expenses and investment earnings. Keep in mind that with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash value is the amount available when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.