Life insurance will be one of the most important purchases that you’ll make in your lifetime. Of course, it will have a more significant impact once you are gone but knowing that your family or loved ones will be taken care of puts a considerable significance on it.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.
There are three main types of life insurance: whole life, universal life, and variable life insurance. Let’s take a look at each one, and what they include so you can make an informed decision on what will be one of the most important decisions you will make.
Whole/Permanent Life Insurance
For permanent life insurance, you pay a premium for as long as you live, and a benefit will be paid to your beneficiaries upon your death. In addition, permanent life insurance typically comes with a “cash value” savings element.
Permanent life insurance typically comes with a “cash value” savings element and offers a stable and safe savings plan.
Three guarantees with this type of life insurance include a guaranteed rate of return on cash, guaranteed cost that will not change and is locked in when you purchase, and a death benefit guaranteed to last for your “whole life.”
Universal Life Insurance
Universal life insurance has the same coverage and cash value as you would with the whole life, but it has greater flexibility. In other words, it’s a term insurance policy with a savings component and no set premium. As a result, you only have to cover the cost of insurance and a few other expenses to keep the death benefit.
Once money has accumulated in your cash-value account, you may be able to vary the frequency, as well as the amount, of your premiums. It may be possible for the invested cash value to cover your premium costs entirely eventually.
However, one thing to keep in mind is that altering your premiums may decrease the value of the benefit that your loved ones would receive once you pass away.
Variable/Term Life Insurance
A straightforward way to explain this type of life insurance is that at the end of the term, your level, fixed, and affordable premium is over, and so is your coverage. Remember that you’re not buying life insurance for 1 or 2 years. The terms are generally offered in 10, 15, 20, and 30-year terms.
At the end of the term, the life insurance company will usually allow you to continue the same coverage but at a significantly increased cost.
With variable life insurance, you receive the same death protection as other types of permanent life insurance, but you are given control over how your cash value is invested. These options include investing your cash value in stocks, bonds, or money market funds.
The premiums for this type of insurance are fixed, and you can’t change them in relation to the size of your cash-value account. Term life insurance is offered at an affordable price, making it a very popular option for those who need a particular amount of coverage to replace their income if they die.
What Type Is Best For Me?
All three of these life insurance types work well and should be considered when purchasing a new life insurance policy.
The best life insurance policy for you depends on your needs and budget. Please don’t make a quick and hasty decision and regret it later. Sit down, look at your budget work out what you can afford.
For most people, term life insurance is sufficient, and it’s the cheapest type of coverage which is a big draw card. It lasts a set time and provides a guaranteed payout if you die during that term.
A permanent policy such as whole life insurance might be a good fit if you’re interested in lifelong coverage. They may build up cash value over time, and once you’ve accumulated enough, you can start taking out loans against your policy.
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