Life Insurance Information
There is more than one type of insurance policy that can protect your family’s financial future in the event of death. There is final expense insurance, which covers the funeral costs of the departed, saving family members from the stress of a large expense. More commonly is life insurance. Most people are familiar with the basics of life insurance. You pay a premium and your family receives a monetary payout when you die. There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent insurance (whole life), which includes universal life and variable life.
Term insurance is designed to meet temporary needs. It provides protection for a specific period of time (the "term") and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.
In contrast, permanent insurance provides lifelong protection. As long as you pay the premiums, and no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time.
But remember, the best way to figure out the amount and type of life insurance that makes sense for your particular situation is to meet with a qualified and licensed life insurance professional.
What is term life insurance?
Term life insurance is the most affordable type of life insurance. This makes it popular among young adults who are just starting families of their own. With a term life policy, you select the number of years—the term—in which your policy will be active. You may find monthly premiums to be affordable. But, keep in mind that dependents will receive a payout only if the policyholder dies within the specified term.
What are the benefits of term life insurance?
If you wish to leave a legacy behind for your family, life insurance is an important consideration. Term life insurance provides an affordable way to ensure your family can continue making ends meets. Because this is the most basic type of life insurance, it’s easy for many to fit it into their budgets. And you’ll pay the same rate for your entire term, regardless of waning health.
Most insurance providers allow you to select a term of one to 30 years, giving you the option to lock in your rate for longer. When you renew a term life insurance policy, your new rate is recalculated based on your current health and other factors. This is why many people lock in their rate for longer terms.
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What is permanent (whole life) insurance?
Whole life insurance provides financial protection over your entire lifetime. This is different from a term life insurance policy, which provides protection for a specified period of time. Also, known as ordinary life or straight life, whole life insurance is in the cash value category of life insurance. Universal life, variable life, and endowment policies are also in this category.
The premiums of whole life insurance are fixed at the age you buy your policy and do not change as you get older. As long as you pay the monthly premium, your beneficiaries receive a payout upon your death.
What are the benefits of whole life insurance?
Whole life insurance doubles as both comprehensive coverage and an investment tool. Many of these policies invest part of your premium to allow your policy to accrue cash value. You can save these additional funds as part of the death benefit payout. Or, you can withdraw funds to support big life events, such as buying a new home or sending a child to college.
Because whole life is more comprehensive, premiums often cost more than term life insurance. But, you get a lot more bang for your buck. Plus, your premium remains the same throughout your life. With term life insurance, your rate is recalculated each time you renew coverage.
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What is universal life insurance?
Universal life insurance is a form of whole life insurance that gives you more control when it comes to how your money is being handled. It combines the low-cost coverage of term life insurance with the savings element of whole life insurance. Universal life insurance provides more flexibility than other policies. You can review and adjust premiums, savings element and the death benefit as circumstances change.
What are the benefits of universal life insurance?
With a universal life insurance policy, you can shift money between the insurance and savings components as the market and interest rates change. This control is great for people who prefer a hands-on approach to investing. For example, if your savings component has low returns, you can use it to pay the premiums instead of paying out of pocket.
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What is variable life insurance?
Variable life insurance is a form of whole life insurance that gives you more control over your investment options. This policy also includes a cash value account, which is invested into many sub-accounts of your choosing. As your policy’s cash value grows, you can use the profits to increase the death benefit you leave behind. Or, you can withdraw funds as necessary.
What are the benefits of variable life insurance?
A variable life insurance policy is great if you prefer to do your own investing. Like all investments the policy’s cash value can grow or decrease depending on the investment fund performance. Plus, annual growth of your policy’s cash value account is not taxed as ordinary income, which can save you money in the long term.
It's impossible to say which type of life insurance is better because the kind of coverage that's right for you depends on your unique circumstances and financial goals. With the help of your agent, you must decide which type of life insurance is right for your needs.
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