If you think it’s time that you invested in life insurance, no doubt you’re wondering how one type varies from another and what type would be best for you. Of course, the choice you make is dependent on a number of factors, from how much you can afford, how long you want the policy to last, and whether you want the policy to double as an investment/savings plan.
The most common types of contracts are whole life, term and universal, although there are other variants such as variable, simplified issue, guaranteed issue and group life insurance available. All of these types typically fall under two main categories: Term and Permanent. Term is designed where the policies last for a specified number of years and only payout on death. If you’re still alive when the term ends, the policy will simply expire. Permanent includes policies such as whole life and universal and is designed to last your entire life. The policy will usually include an investment or savings element which you can withdraw while you are still alive. You can also choose to sell your policy at a later date should you require a lump sum. Should you decide you’re seeking a payout, you can find a guide online which will help you to research the best ways to do so.
Term Life Insurance
Typically sold with a fixed term, which can range from one year to thirty years, term insurance offers level premiums and set coverage amounts. This is usually the most affordable way to buy life coverage, however, if you outlive your policy, there will not be a distribution to your beneficiaries.
Whole Life Insurance
As the name suggests, this kind of policy lasts until your death and will pay out as long as you are up to date with the premiums. Your premiums are usually set when you take out a policy and you will receive a guaranteed rate of return on the cash value and a set death benefit. Many people choose this type of policy as it provides both a cash value and death benefits however, it is more expensive than term or other types of permanent life policies.
Universal Life Insurance
Within this category of insurance are guaranteed policies with level premiums and a guaranteed death benefit but little to no cash value. With this type, you choose the age that you want the policy to end, e.g., 90 or 95. As there is little cash value, it’s the cheapest form of universal life insurance but if you don’t pay your premiums on the time it could void completely.
Other forms of universal coverage include variable universal policies where the cash value is linked to investment accounts such as bonds and your premiums and death benefit can change according to how the market performs. With these policies, you could make considerable gains if your investment choices perform well and you have the option to make withdrawals or borrow against the cash value. However, as it is linked to bonds and shares, the policy will need management and you will be required to pay fees and admin charges.