Benjamin Franklin once said that only two things are certain in this life, death, and taxes. Unfortunately, while you can plan for taxes, planning for death is a tad difficult. However, you can secure your loved ones’ future by getting a solid life insurance policy.
Life insurance is a type of insurance that protects your beneficiaries in the event of your death. That’s why 54% of Americans have life insurance; maybe getting it isn’t such a bad idea.
If you’re in the market for life insurance, you might be somewhat spoilt for choices. With so many types of life insurance, picking the right one can be a little challenging. If you’re stuck on the type of life insurance to pick, don’t worry, we’re here to help.
In today’s post, we’ll be looking at the various types of life insurance so that you pick the right one next time you’re looking for life insurance.
Term Life Insurance
As the name connotes, term life insurance only lasts for a given term. “Term,” meaning a couple of years, typically 10,15,20, 25, or 30 years. Should you pass on before the term limit expires, your insurer pays your beneficiaries a death benefit.
The coverage amount depends on your insurer and insurance policy. They can vary from a few thousand dollars to millions of dollars. Term life insurance policies break down into two subcategories; which are:-
Level Premium: This type of insurance will give you the same price for the length of the policy. In simple terms, what you give is what you get.
Annual renewable: As the name suggests, you’ll have to renew your annual renewable policy every year. This type of policy is great if you have short-term debts or need insurance cover for a brief period.
Term life insurance is the most affordable insurance policy, but it expires when you outlive the policy period. This means if you stick around for too long, your family won’t receive any benefits.
Whole Life Insurance
If term life insurance doesn’t fit your fancy, maybe you should consider getting whole life insurance. Unlike term life insurance, whole life insurance lasts until your death. That’s why it seems like the better option for most people.
With whole life insurance, your premiums never change, nor does the death benefit. It’s more of a “set it and forget it” type of insurance. As long as you pay the premium, you have nothing to worry about. Some insurers refer to the whole life insurance policy as permanent life insurance, but they mean the same thing.
Whole life insurance breaks down into four main types, and they are:
Participating Whole Life Insurance
Participating whole life insurance gives the policyholder a chance to grow their cash value on the policy. That’s because this type of policy allows dividend payments from the insurance company. So you’ll receive additional cash payments if the insurance company’s investments do well.
However, keep in mind that these dividends aren’t guaranteed. That means there’s a risk involved if you choose a participating whole life insurance policy. What’s more, participating whole life insurance policies cost more than other types of whole life policies, but maybe it’s worth the extra cash.
Non-Participating Whole Life Insurance
Non-participating whole life insurance guarantees a fixed death benefit when you pass on. The insurance company won’t involve you in any of its investment activities. It’s a simple agreement between you and the insurer; you pay the premium, you get the benefits.
Level Premium Whole Life Insurance
With this type of whole life policy, the insurer charges a premium based on the duration of the policyholder’s life. You’ll have to pay a premium each month until your death. As the name suggests, the premium remains level and doesn’t change throughout your entire life.
The benefit of this whole life insurance policy is that you have a firm idea of what you’re supposed o pay every month. However, most level premium policies are limited to 95 years or maybe 100. That means if you live past that, you won’t get any benefits.
Variable Life Insurance
Variable life insurance is a type of whole life insurance that has a cash value. Aside from the usual premium, variable cash insurance involves investment funds like stocks, money markets, and bonds funds.
Universal Life Insurance
What sets apart universal life insurance from other policies is that it has a cash value. Therefore, any premium you pay contributes to the cash value and the benefits you receive after you pass on. Because of its cash value, you can change the premium and death benefit whenever you wish to.
However, most insurers have a minimum premium that you’ll have to pay to keep the policy active. The good news is that you can use the cash value of your policy to pay the premium. If your policy’s cash value matures, you can skip premium payments entirely if you want to.
Keep in mind that the cash value of a universal life insurance policy has an interest rate. This interest rate varies depending on the current market interest rate. Sometimes, the interest rate may decrease to the minimum, so you’ll have to pay the premium to offset the reduced cash value.
Because universal life insurance is so flexible, some people say it’s the best insurance policy. This may be true, but only if you get a credible insurer. If you need a life insurance policy, you best do your research before committing to an insurer.
Types of Life Insurance in a Nutshell
Now that you’re up to speed with the various types of life insurance, it’s now time to pick the right one for you. Even with optimal health, you never know when the unexpected might happen. To safeguard your loved ones’ future after your death, it’s a good idea to get life insurance.
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