Types of Life Insurance

Different types of life insurance policies there to suit the needs of different people. It can be confusing to determine what one type covers and what feature belongs to another type.  A chat with a life insurance agent or broker will help in the verification process.  A careful evaluation of what your family needs and can afford establishes what insurance type is best to avail of.  Consider factors like your marital status, age, how many children you have and their corresponding ages, medical history, earning capacity, debt and other financial concerns.

The simplest and most affordable life insurance policy is the Term Life insurance. No cash value is available for this one because it’s simply a pure insurance account.  It serves only one function and that is to give a lump sum to your beneficiary upon death. It offers protection for 10-30 years depending on the agreement with the insurance carrier. The amount for the death benefit and policy limit are equal.  For example, a $200,000 policy will return a $200,000 cash benefit.  There are no computations needed for interest rates and the like.

Some other types of life insurance act have two functions: as a death benefit and investment. These are commonly referred to as cash value accounts.

Whole Life insurance provides permanent protection. There is also a death benefit paid to beneficiaries and a low-risk cash value can be withdrawn from the account while the holder is still alive.  In short, you can take out a loan on the policy.   The premiums are fixed meaning they won’t increase in your lifetime as long as there is regular payment on the account.

Variable Life insurance gives policy holders the chance to accumulate cash in a tax-free and low-risk manner like whole life insurance does. Death benefits may vary depending on the returns from the cash-value account.  It is also possible to take a loan from this type of policy.  There are no guaranteed amount for the cash value during a policy holder’s lifetime.

Universal Life insurance is the more flexible than the previously mentioned types. It gives permanent protection to the beneficiaries as well.  Aside from paying a death benefit to one’s dependents, the cash value account can also earn market rates.  This means that the monetary equivalent of your policy earns interest over time which can be withdrawn or borrowed as requested by the policy owner.  However, this cannot be invested in the stock market, bond funds, and other money markets.

Universal Variable Life insurance offers more control on the cash value account of the policy holder. Death benefit payment is given to dependents of the holder while having cash value options.  The possibility of withdrawal and loan are allowed in this type of insurance policy.  The contract can be terminated earlier.  However, the holder will receive a smaller cash value compared to a whole contract.  The amount specified in premium payments can vary.  A policy holder must be committed to spending time on universal variable life policies in order to manage them well and to ensure long-term success.  Small premium payments are not advisable here because the money is needed to cover the insurance and cash-value account.