Final answer:
The two basic types of life insurance policies are term and permanent whole life. Term insurance is affordable and covers a specified period, whereas permanent whole life insurance offers lifelong coverage with a cash value component that grows tax-deferred and can be borrowed against. Option 2) term and permanent whole life is the correct answer.
Step-by-step explanation:
The two basic types of life insurance policies are term and permanent whole life. Term insurance is designed to provide financial protection for a specific period of time, such as 10, 20, or 30 years. It is often the most affordable type of life insurance but has no cash value element. On the other hand, permanent whole life insurance provides lifelong coverage and includes an investment component known as cash value, which can be used by the policyholder during their lifetime. This cash value accumulates on a tax-deferred basis and can be borrowed against or withdrawn from the policy. Whole life insurance tends to have higher premiums than term life insurance because of this cash value feature and the permanence of the policy.
Understanding Life Insurance
Insurance is an essential part of financial planning. We live in a world where various risks and uncertainties are common, and insurance helps to manage these risks. When it comes to life insurance, understanding the difference between term and permanent whole life policies is crucial for making an informed decision that aligns with your long-term financial goals. Many people have various forms of insurance such as health insurance, car insurance, house or renter's insurance, and life insurance. Life insurance specifically provides a payout to beneficiaries upon the insured individual’s death, which is vital for family protection and can also serve estate planning purposes. Knowing what type of life insurance to purchase depends on individual needs, financial situations, and goals for the coverage. Private insurance can be obtained through employment-based sources or direct purchases from private companies. The premium costs for life insurance will depend on factors such as the individual's health history, including family medical history, and the type of insurance policy selected.