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Life Insurance 


There are two basic types of life insurance:

TERM INSURANCE

Term policies protect you for a fixed amount of time.

Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. This type of insurance policy contrasts with permanent life insurance, in which duration extends until the policy owner reaches 100 years of age (i.e. death).


These types of policies provide a stated benefit upon the death of the policy owner, provided that the death occurs within a specific time period. However, the policy does not provide any returns beyond the stated benefit, unlike permanent life insurance policies, which have a savings component that can be used for wealth accumulation.

PERMANENT LIFE INSURANCE

An umbrella term for life insurance plans that do not expire (unlike term life insurance) and combine a death benefit with a savings portion. This savings portion can build a cash value - against which the policy owner can borrow funds, or in some instances, the owner can withdraw the cash value to help meet future goals, such as paying for a child's college education. The two main types of permanent life insurance are whole and universal life insurance policies.


To borrow against the savings portion of a permanent life insurance policy, there is usually a waiting period after the purchase of your policy for sufficient cash value to accumulate. Also, if the amount of the unpaid interest on your loan plus your outstanding loan balance exceeds the amount of your policy's cash value, your policy and all coverage will terminate.


Permanent life insurance policies enjoy favorable tax treatment. The growth of cash value is generally on a tax-deferred basis, meaning that you pay no taxes on any earnings in the policy so long as the policy remains active. Provided you adhere to certain premium limits, money can be taken out of the policy without being subject to taxes since policy loans generally are not considered taxable income. Generally, withdrawals up to the amount of premiums paid can be taken without being taxed.