As you begin to age, researching the different types of life insurance becomes increasingly more important. Without getting answers to the question, “What are the different types of life insurance,” followed by choosing the one that meets your criteria, you could inadvertently leave your beneficiaries with a financial mess.
Universal Life Insurance
This policy lasts throughout your entire life. Even after reaching the age of 80, 90, or 100, you still have coverage. Sometimes called “cash value” life insurance, it includes a savings account.
With universal life insurance, anything you pay beyond the monthly premium builds up a cash value. Eventually, you can withdraw funds much like you would with a traditional savings account. Many people go with universal life insurance since it serves as protection and savings.
Different types of universal life insurance exist, including indexed universal life, guaranteed universal life, and variable universal life. Along with the benefits of this type of policy is one major drawback. Your beneficiaries would only receive the death benefit amount after you die, not the cash value. Instead, that money returns to the insurance provider.
Whole Life Policy
A whole life policy also provides coverage for the duration of your life. Initially, you, along with the insurance provider, determine the amount of the policy, otherwise called the “death benefit.” This is what your beneficiaries receive after your passing. The insurer then sets the monthly premium, which never changes.
There is one important caveat. The money invested as opposed to what you pay for coverage can vary annually. Early on, a much bigger portion of the premium goes toward the cash value. Later, a larger portion goes toward actual coverage. It takes significant time to grow the cash value, but at some point, you can borrow against it or just leave it alone.
Unfortunately, maturity age is a problem. Depending on the insurance provider, you might need to wait until reaching the age of 120 years before getting the cash value. More than likely, you’ll pass away first. Unless you borrow money against it while alive, the cash value disappears. So, your beneficiaries receive nothing more than the death benefit.
Term Life Insurance
With term life insurance, coverage is for a specified period, usually between 20 and 30 years. If you die during the life of the policy, your beneficiaries receive a payout. A key advantage of this policy is its affordability.
Term life insurance does not include the cash value. So, if you’re most concerned about taking care of their loved ones following death as opposed to building a reserve of funds, this might be your best option.
Difference Between Term and Whole Life Insurance
When asking, “What are the main types of life insurance?” one topic constantly pops up: the difference between term and whole life insurance.
Term Life Insurance
The rules for term life insurance are easier to understand, and the policy is more affordable between the two. However, coverage is for a term of usually 20 to 30 years. If you want a policy to replace income over a specific period and need low-cost protection, this is a good consideration.
Whole Life Policy
This more complex and costly policy includes the cash value and lasts your entire life. Whether to provide your beneficiaries with funds after your passing, enjoy your retirement savings yet still leave your loved ones money, or equalize inheritances, this could be the right choice. With a whole life policy, you can even fund a trust account, which is ideal if you have a lifelong dependent.
Get the Right Life Insurance Coverage for You
As you can see, every type of life insurance is unique. To select the right type of policy based on your needs and goals, work with a reputable insurance provider.
