Most people agree that purchasing life insurance is the best way to financially protect their family in the event of an untimely death. However, knowing the difference between the different types of life insurance policies creates a great deal of confusion, and can make it difficult for some people to make a plan for the future. Knowing the basics of each type of policy can help narrow down the options.
Term Life Insurance is a basic type of life insurance, and thirty years; if death occurs during that time, beneficiaries are paid the face value of the policy. Term life insurance may be the best option for those who can only afford a very low premium, or if life insurance is only needed for a specific amount of time (until children are grown, for example).
Whole Life Insurance is a type of permanent life insurance, in which a set premium is paid throughout the life of the policy. Upon the insured person’s death, benefits are paid to his or her beneficiaries. In early years, the premiums may seem high as compared to the risk of death, but they remain the same as the insured grows older.
Universal Life Insurance is also a type of permanent life insurance, but comes with added benefits as compared to whole life insurance. This type of policy carries greater flexibility, often allowing the insured person to vary the frequency and amount of premiums once cash value has accumulated in the account. Sometimes the policy can be structured so that the invested cash value eventually covers the premium costs. Naturally, altering the policy can sometimes change the death benefit, so it’s important to discuss these plans with an insurance agent or financial advisor.
Variable Life Insurance comes with the same benefits as other types of permanent life insurance, but the insured person has control over how the cash value of the policy is invested. This type of insurance carries more risks, due to the varying ways in which the value can be invested, but may also grow more quickly if investments are made wisely. Some policies do carry the guarantee that the death benefit amount will not fall below a certain level. Premiums on this type of policy are fixed and do not change depending upon the cash-value amount.
Variable Universal Life Insurance, as the name implies, combines features of both variable and the death benefit amount.
As with most financial decisions, a life insurance policy should be purchased with the insured person’s specific financial goals and discuss all options with their life insurance representative before choosing a policy.