Permanent vs. Term Life Insurance in California

The types of life insurance are split based on the needs they solve for the insured. One type (Term Life) provides death benefit at the lowest possible cost, while the other (Permanent Life) acts as a lifetime-long financial tool, which also happens to be life insurance. Make sure to discuss your choice with a California-licensed life insurance agent, who can help you make the selection based on your specific needs.

PERMANENT (CASH VALUE)

What is life insurance with cash value?

Cash Value Life Insurance is a type of life insurance policy that includes a cash value component in addition to death benefits. Life insurance cash value is typically meant to be used up while the insured is still alive, otherwise the insurer keeps it and uses it to pay out the portion of the death benefit.

The regular payment of your premiums will ensure that the policy remains active for your lifetime (making it Permanent, as opposed to the Temporary Term). You can borrow against the cash value component of the policy. Any outstanding sums not liquidated at the time of your death will be deducted from the final amount paid to your beneficiaries upon your demise. Variations of cash value life insurance policy in California include:

• Whole Life Insurance: Also known as Full Life Insurance, it is a policy that lasts throughout the insured's life span. It remains active until the policyholder stops paying the premium. Some policies under whole life insurance may require you to pay premiums for a certain number of years, while others might require the payment of premiums throughout the life of the policy

  Note: As a form of whole life insurance, Final Expense life insurance also has a cash value savings option, but it is typically not exercised to the extent of the other cash-value life insurance types.  

• Universal Life Insurance: Universal life insurance is a flexible policy type that allows you to make changes to beneficiaries, and premiums or change the death benefit more easily than the other types of cash value life insurance. The policy may be structured to last for your lifetime or it may be subject to a specific period in the same manner as term life insurance. The most well-known example of Universal life insurance is Index Universal Life insurance (IUL - also known as Universal Index Life Insurance). The growth of the cash value account in the IUL insurance policy is tied to a stock market index

• Variable Life Insurance: Variable life insurance policies are a type of cash value life insurance that includes an investment component where the policy owner is in full control of the investment from the cash value account. Under variable life insurance, the cash value can be invested in sub-accounts and could then increase or decrease depending on the performance of these accounts. You can then take advantage of any growth as there will be a larger pool to borrow against or utilize while a poor performance will result in a reduction of the funds in the cash value account.

  In case of a market downturn, unlike the IUL, where the potential investment loss is limited, in variable life insurance the loss can be much more significant. Due to this, Variable life insurance is considered a security and the agent who sells variable life insurance has to be licensed by both the California Department of Insurance and the Financial Industry Regulatory Authority (FINRA) Series 6 and 63 License.

  Variable Universal Life Insurance: This is a mix of universal and variable life insurance. It has the flexibility of universal life insurance in that you can make changes easily. It also includes an investment component

TERM LIFE INSURANCE

Term life insurance in California (also referred to as Temporary life insurance) provides coverage only for a specific period, not a lifetime, and it is typically the cheapest way to leave money behind after you die. Unlike the Permanent insurance, which has investment accounts and various optional coverages and financial tools that you can use while alive, California Term life insurance is meant to be the simplest way to leave behind more money for the lower cost.

A term life insurance policy could be for just a year, 10 or 20 years, or a specified term. Death benefits will only be paid to your policy beneficiary if you die within the policy term. A person can opt for term life insurance if the coverage goal is just for a short period. Note that the cost of term life insurance premiums go up as you grow older. The preferred term length of your term life insurance policy will depend on the purpose for which you want to get the policy and the type of coverage desired.

Some life insurance companies operating in California offer simple term life insurance policies, which do not require medical exams and waiting periods (similar to Guaranteed Issue life insurance plans).

Discuss California term life insurance quotes with a  licensed life insurance professional for advice on the suitable term life insurance coverage for your needs.