American life insurance policy is regarded as a contract between the insurer and the policy owner, whereby the insurer guarantees to pay death benefit to the owner vis-à-vis the payment of policy premiums.
Life insurance in US is a popular resource of financial investment. Two basic types of American life insurance schemes are temporary policy and permanent policy.
Types of American Life Insurance
A temporary or term life insurance policy provides financial cover for a specified period of years against a fixed amount of premium. This kind of insurance policy is beneficial only upon a policy holder’s death. The obvious disadvantage is that it does not earn any cash value and repays principal amount with minimal interest by the end of the policy tenure.
Factors to consider include the death benefit amount, premium to be paid and the term of the policy before you go ahead and buy a term life insurance. Different US insurance companies provide term life insurance varying on the basis of above factors.
A permanent American life insurance refers to an insurance scheme that continues over the years until the policy has paid back the total amount. These policies earn cash value and the policyholder is entitled to the cash value generated by the policy. There are three different types of permanent life insurance policies:
Whole-life insurance: This policy covers the policyholder’s entire life span and ensures fixed death benefits. Definite premium amount and guaranteed cash value make this American life insurance policy a good choice.
Universal life insurance: A universal American life insurance policy offers greater flexibility vis-à-vis a whole-life insurance policy. In this policy, you determine both the insurance amount and the premium. A variable policy is a type of universal life insurance policy which offers no guaranteed benefits. So, a policy owner decides where the amount will be invested. If investment does well, cash benefits will be extended otherwise policy can lapse due to insufficient funds.
Most premiums that are paid for an American life insurance policy are not considered for tax deductions. However, the cash value generated by the policy is free from tax.
To capitalize on savings amount without tax deductions, check the tax deduction clause with care before you purchase a policy.