What is life insurance? If you have any kind of investment or savings account, the chances are good that you have some kind of life insurance on deposit. However, what is life insurance? Life insurance is an important way to protect the investment and savings you have in place, as well as your family’s financial future. A variety of policies are available, covering many aspects of life, including term life insurance, whole life insurance, universal life insurance, variable life insurance, endowment life insurance, and budget life insurance. Which type of life insurance best meets your needs and financial goals?
Universal life insurance: an easily accessible life insurance policy which covers you and your loved ones for the long term, usually ranging from five to thirty years. Once the term expires, there’s no additional benefit to your policy. This insurance is usually cheaper in most states when compared with other types of policies due to its simplicity and lower premiums.
Permanent insurance: this policy is considered permanent, providing long term coverage. Unlike whole life insurance term policies, it does not require a medical examination for eligibility. It doesn’t restrict the investment options, opting instead for an investment focus to guarantee your savings and build your cash value. Premiums are higher than those of whole life policies. Because it does not restrict the investments, the premiums may be tax-deductible, but you lose flexibility.
The four different types of life insurance policies include term life insurance, whole life insurance, universal life insurance, and variable universal life insurance. Term policies offer coverage only for an agreed upon period. It can either be for one year or for an unlimited amount of years, making it very simple to assess. Whole life insurance, as the name implies, provides coverage for the lifetime of the insured. It’s the most expensive of the four.
Universal life insurance and variable universal life insurance are more complex than term policies. They allow the insured to select from a variety of options, including investment alternatives and even investments within the policy itself. Once you’ve made your selection, the premiums start growing according to your risk level. You also have choices regarding your death benefit, what premiums you’re willing to pay, and how much of your death benefit is applied to interest and taxes. The policy can vary widely in these aspects, making the entire application process somewhat lengthy and confusing.
Variable universal life insurance provides coverage for the long term but allows the insured to change the premium payments as their circumstances change over time. A key feature is the ability to invest the premiums paid into a separate accounts. A lower premium may translate into a larger death benefit if a high interest rate investment produces more money down the road. You can opt for higher interest rates, and for the same premium, you may be able to pay less in the event of a disability. Variable universal life insurance policies have become more popular as the cost of premiums has become more affordable.
The whole life insurance option combines term insurance with universal life insurance. You receive a lump sum value when you sign up. This sum is invested to generate a monthly income while your insurance stays in place. If you should die, the insurance continues to cover your loved ones’ mortgage and credit cards, home equity loans, and education. Whole life insurance is much less expensive than term insurance, which means it provides less total protection, but the higher premiums mean that people who purchase this type of insurance are generally much more protected.
To learn more about the different types of life insurance products, talk with a licensed life insurance agent. They will help you weigh the pros and cons of the different options. They can also assist you in choosing the best policy for your situation. Many term policies have a deductible, but there are many types of term policies that do not. Talk to an agent to find out exactly what kind of term policy is right for your needs.