There are several types of life insurance policies, each with unique characteristics. The right one for you will depend on your financial situation, family status and many other factors.
Term life is the most popular type of coverage because it offers protection for a certain period. It’s also affordable and a great way to protect your loved ones if something happens to you.
Term Life Insurance
Term life insurance is one of the most popular types of real life insurance because it’s relatively cheap. Generally speaking, a policyholder can purchase term coverage lasting 10 to 30 years, although some companies offer longer terms of 35 or 40 years.
During that period, the policyholder pays premiums to receive a death benefit from their insurance provider. This benefit can be used to pay for a funeral, provide for future living expenses or pay off a mortgage.
The amount of a death benefit is typically based on the age and health of the policyholder, though in some cases, the insurer may also ask for a medical exam before issuing the policy. This process is called underwriting, designed to evaluate the risk of insuring a particular individual.
A benefit of term life is that it’s relatively inexpensive compared with a permanent policy, such as whole life or universal life. Because of this, it’s common for younger, first-time policy owners to buy term life.
Term policies are also available as convertible term insurance, allowing you to convert the policy to a permanent one once the term is over without going through the underwriting or medical exam process again. This conversion can be a good option for people who want to secure a higher death benefit, but only when they are prepared to take the extra steps.
Whole Life Insurance
Whole life insurance, also known as permanent life, is a type of life insurance that lasts for the policyholder’s life. It is a good choice for individuals who want to secure their financial future and provide for their heirs.
This kind of Real life insurance is generally more expensive than term life insurance, but it is a good option for people who need a permanent death benefit and are willing to pay the extra premiums.
With whole life insurance, a portion of each premium payment builds a cash value component in the policy. This cash value grows over time and can be accessed with a policy loan or withdrawal.
In addition to the cash value, many whole life insurance policies come with dividends to help the policyholder build their retirement savings. These dividends are usually not taxable and can be used to increase the policy’s death benefit or pay your premiums.
The best whole life insurance policy will meet your financial goals and protect you for the rest of your life. But it’s important to remember that whole life insurance is a significant investment and may only be the right option for some. It’s also important to consider the fees and surrender charges that can apply if you decide to terminate your policy later in life.
Universal Life Insurance
Unlike term life insurance, which only lasts for a set period, universal life is in effect throughout your lifetime as long as you continue to pay premiums. Growth within the policy’s cash value component is tax-deferred, and death benefits are paid to your beneficiary free of federal income taxes.
You can borrow money against your universal life policy, but the interest rates that the insurer charges will vary based on the terms of your contract. You can withdraw cash from the policy to cover medical bills or expenses, but you will reduce your death benefit payout to your beneficiaries when you do so.
There are several types of universal life insurance policies, each with a different death benefit, investment options and premium payments. These include traditional, indexed, guaranteed and variable universal life insurance policies.
A traditional universal life policy’s cash value appreciates according to the performance of the insurer’s investment portfolio. It’s a good choice for people who want the security of knowing their death benefit will always be protected.
Variable Life Insurance
Variable life insurance, also known as variable universal life (VUL), is a permanent life insurance policy with the potential for cash value growth through investments. Its premiums are flexible and can increase or decrease with market conditions.
In a variable life insurance policy, a portion of your premiums goes to the insurance company, while a more significant percentage is allocated into a cash-value investment account. The investment money can be invested in stocks, bonds or other funds.
During your lifetime, you can also convert some or all of your policy’s cash value into a death benefit for your beneficiaries. It may allow you to pay a higher death benefit and reduce the cost of your premiums.
Another important feature of variable life insurance is the ability to borrow a portion of the cash value. It allows you to access a portion of the policy’s value without paying federal taxes, although you’ll need to repay any loans taken against the policy.
If you choose to take out a loan against your variable life policy, read all the details. It will help you understand the tax consequences and avoid making a mistake that could be costly to your family’s financial future.
Depending on the type of policy, you can borrow up to 90% of the value of your policy. However, this will come with a fee that you’ll have to pay at the time of withdrawal and can limit how much you can access before your policy lapses. In addition, it may be difficult to withdraw from the policy if you’re unemployed or in poor health.
