Life in general can be a complicated time – no matter what age you are. Life insurance can also be a very complicated and confusing time as well, especially considering all the different plan options that are available out there. Thankfully even though at first look insurance may seem utterly mind blowing, but it doesn’t have to be. If you are looking for a way to find out about different types of life insurance, benefits, pros and cons, or just general information, be sure to continue down below for more information on all the different options available and what each one is specifically for. Hopefully this will give you peace of mine, but also help you choose a plan that really works for you.
When it comes to life insurance, there are 4 different types. Here are those different types and a little information regarding those 4 types:
Term Life Insurance: Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else. When it comes to Term Life insurance there are a few things you should consider such as protection or death benefits, cost to be insured and the length of the term. Term Life plans can be purchased in 5, 10, 15, 20, 25, 30 or 35 year terms. Coverage needs for Term Life includes a temporary term life of 10-30 years. There is no cash accumulation for this plan and it’s fixed for the initial period of the plan.
Whole life insurance provides lifetime death benefit coverage for a level premium. For younger people, whole life premiums are much higher than term insurance premiums, but because term insurance premiums rise with increasing age of the insured, the cumulative value of all premiums paid under whole and term policies are roughly equal if policies are maintained to average life expectancy. Part of the insurance contract stipulates that the policyholder is entitled to a cash value reserve that is part of the policy and guaranteed by the company. The coverage for this plan is a lifetime, there is a guaranteed cash value depending on what the plan is for and how much, the flexibility on this plan is VERY flexible.
Universal life insurance (UL) is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. There are several types of universal life insurance policies, including interest- sensitive (also known as “traditional fixed universal life insurance”), variable universal life (VUL), guaranteed death benefit, and equity-indexed universal life insurance. This plan also has a lifetime coverage available, the plan is flexible, but it has a cash value that is specifically set by the insurance company – this could be a good or a bad thing.
This type of insurance is one that combines both the death benefit protection as well as the ability for the cash value to grow overtime and is connected to the stock market – but in a completely safe way, you have all the befits and no risk of losing them, even though they are connected to the stock market. The cash value that grows and matures over time will create credits based on those movements in the stock market. The great thing about an Equity Index plan is that they have a 0% floor – this means that in no situation will your plan have less than 0% even due to bad stock market performance. This also has a lifetime coverage, and has the same cash value options as the plan above and equal flexibility, however, the death benefit only can be used for 10-30 years.
Above in the plans, we spoke briefly about cash value accumulation. Essentially when you have a policy it can (or might not) include an added guaranteed cash value for something like a guaranteed premium. This means that the premium at the start of a policy is going to be much larger than at the end of the term. Additional premiums in these cash value plans allows you to take the extra money created by the plan and really just place that money in a different account. You can use this money (as the holder or the insurer) to either grow the plan, make payments on the plan each month, borrow against it later on, or even increase the death benefit if you choose to do so. If you have a policy that is a cash policy, any insurer is going to tell you that it’s a good idea to keep it until the holder dies or you retire so that you can get maximum profits from the term.