The different types of life insurance
There are many types of life insurance with different features and benefits that meet different needs. Prior to purchasing a life insurance policy you need a primary understanding of the different types of polices available.
Term Life Insurance Explained
Term life insurance offers insurance coverage for a term of from 1-30 years. Yearly premiums are paid to the insurance firm to continue the policy in effect. If the policy owner dies during the term, his or her beneficiary is paid a lump-sum of money. If the policy owner lives beyond the term, the policy simply expires, and no death benefits are paid.
There are no savings or investment characteristic to a term life insurance policy. The insured must fill medical conditions prior to obtaining a policy. The yearly premium varies depending on the sum of coverage desired and the insured’s age and wellness. Because chances of death increase with age, standard term life premiums increase every year.
The pros of term life insurance are its affordability and the short term protective cover it provides without any risk. The cons include the temporary nature of the insurance coverage, annually-larger premiums, and no gains on you investiture. Term life policies work well if you want to pay off a mortgage in the event of your death or for other similar period specific life insurance needs.
Whole Life Insurance Explained
Whole life or permanent life insurance provides a lump sum payment to the beneficiaries upon the insured persons death. The vantage of whole life policies is they have no specified term, so as long as the premiums are continualy paid the policy will remain in effect for life, or until the endowment age which is typically 100. This just means that if you live to the endowment age, the benefit / proffit is paid to you at that time and the policy is no longer in effect. An additional advantage of the whole life policy is that the monetary value in the policy can be got at in if the insured needs the funds or can no longer make the monthly premium payments.
The premiums for a whole life policy are more expensive than term insurance since the policy holder is covered up till the end of their life. Often the premiums are fixed or decrease over time. This is possible because the insurance provider can invest part of the premium in bonds and investments and use the proceeds to cover the rising cost of insurance premiums and/or to make a payment when the insured dies.
Whole life is generally purchased as part of an estate preparation arrangement to make sure inheritors are looked after if you predecease them.
Universal Life Insurance Explained
Universal life is also named “flexible premium adjustable life insurance,” and is a more flexile version of whole life insurance. Like whole life, universal life includes a savings element that grows on a tax-deferred basis. A percentage of your premiums are invested and the return on the investments is accredited to your policy tax-deferred. Most policies vouch a minimum return on your investment. Universal life offers two death benefit options. One pays the death benefit out of the policy’s monetary value; the more cash value you work up the less the policy costs the insurance provider. The 2nd alternative pays a flat amount stated in the contract, plus any cash values you accrued over the years and costs more.
Universal life policies give you the power to set the death benefit as your needs alter, as well as the flexibility to pay lower or greater premiums for a set period of time. However, you need to make a minimum premium payment as assigned in the contract to avoid the policy lapsing.
Universal life like whole life is broadly used as a part of an estate plan to ensure inheritors are taken care of after your death.
Variable Universal Life Insurance Explained
The variable universal varies dependant on the performance of the investments chosen by the policy holder.
Since the insured decides the investments for a variable universal policy the risk and benefits of the investments falls to policy holder. The policy allows for the insured to choose among an assortment of investments so the investiture can be dispersed between higher and lower risk investments to ensure there is always some economic value to the policy and still capitalize on higher risk investments with the potentiality of higher returns. If the investments perform well the policy holder doesn’t have to pay a premium. If the investments perform poorly there is the risk the premiums will have to be paid or the policy will lapse.
Life insurance premiums alter within a set array and the cash value of the policy.
Insurance Choices
Work with a qualified and independent financial advisor to have your options for life insurance explicated amply prior to you making a decision as to which type of insurance to buy. One type of insurance is not better than a different one but for each one there is a distinct advantage and disadvantage dependent on your specific financial targets and requirements.
