Types of Life Insurance
From LoveToKnow Insurance
There are different types of life insurance. Which type is suitable for your needs depends a lot on your age and the monetary needs for your family in the event of your death.
Three Types of Life Insurance
The three most common types of life insurance are term, whole life and universal life insurance. These policies are both designed to cover your loved ones in the event of your death, but the particulars behind each type of policy differs greatly.
Term Insurance
A term life policy is purchased for a specific period of time, commonly 15, 20, or 30 years. The price of the term policy does not change from month to month, but once the term expires, the cost of purchasing another policy may be more.
The cost of term policies vary, but the longer the term and the older the person buying the policy, the more expensive term policies will generally be.
Whole Life
A whole life insurance policy is not restricted to a set period of time. It is designed to cover you for the remainder of your life. Policy holders may receive dividends from their whole life policy and may be able to consider the funds held within the policy to hold cash value.
Whole life policies usually have higher monthly premiums than term life policies, but as long as the monthly premiums are paid in a timely manner the policy does not expire.
Whether term life or whole life insurance is right for you depends on several factors. While some financial experts praise the consistency and predictability of term policies, other financial experts make the claim that universal life is preferable because of the potential for dividends.
Universal Life
Another type of life insurance which is relatively common – but not as common as term life or universal life – is universal life insurance.
There are two variations of universal life insurance.
- Universal Life: This life insurance combines coverage with investments. The premium is set by the insurer but policyholders can contribute additional amounts that will be put toward the investment portion of the account. Since the investments are under the umbrella of a life insurance policy there can be certain tax benefits to investing this way.
The original terms of the universal life insurance policy determine whether the beneficiary of the policy receives a predetermined lump sum or instead receives the lump sum in addition to the cash value of the investment account.
- Variable Life: This type of universal life insurance offers a wider variety of investments from which to choose. While universal life policies are usually restricted to investments of bonds or mortgage investments, a variable life policy may include stocks.
Like the universal life policy, beneficiaries may receive either the predetermined lump sum or the lump sum along with the cash value of the investment account. Consumers often turn to these types of life insurance when they want somewhere to invest with potential tax advantages.
The Best Policy
With so many different types of life insurance it can get confusing when trying to figure out which one to purchase. Financial experts differ greatly in the version of life insurance they endorse for their clients. While some financial experts extol the virtues of an investment account sheltered under a life insurance policy, others stress that a simple term life insurance policy is the best option and investments should be kept separate.
Which policy you choose should depend on your own needs and preferences. People looking to spend the least amount of money each month on a life insurance policy may best be served by a term life policy while people who want an additional investment vehicle might explore options with another policy that that includes investment opportunities.
It is worth it to consult a life insurance professional before making a decision as to which policy to purchase.
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This page has been accessed 593 times. This page was last modified 15:36, 11 September 2008.
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