Life insurance policies are not one size fits all. There are a lot of different types of policies out there, and if you’re not in the know the choices can be dizzying. This post will break down the most common types of life insurance that you should be aware of when making your decision, as well as who generally benefited the most by each policy.
Term Life Insurance
Term insurance is the most common type of insurance for one simple reason: it is the cheapest. When you purchase term insurance, you are guaranteeing a payment for your loved ones within a certain time frame. For instance, if you buy a 20-year term policy, then if you were to die anytime in the next 20 years, your family could collect a lump sum payment. It’s status as the cheapest type of policy makes terms insurance very attractive to many buyers. The downside, however, is that if you buy term insurance and then do not die during the specific time frame for the policy, you are back where you started and your beneficiary’s do not receive any payment.
Who should buy term life insurance: Still, term insurance is often the best option for many people, especially if you are only just beginning your career and money is tight. Although those early in life often have the least disposable income, they often have the most to lose. You may have a mortgage, car payments to meet, or a young family to support. If this is you, you might want to invest to ensure that your family will be cared for in your absence and protect them from being overwhelmed by bills while still keeping as much money as possible in your pocket here and now.
Whole Life Insurance
If, however, you are most concerned with making sure your investment pays off no matter when it might come time for your family to collect on it, you may want whole life insurance. This type of policy has no expiration date. It is absolutely guaranteed to pay your beneficiary no matter when you die. The premiums for this type of policy are significantly higher than they are for term insurance, and some of that money is directed to an investment fund which is professionally managed. Because your investment is actively being returned under the watchful eye of professional managers, your policy actually builds up its own cash value. If later on you should decide to cash in the policy before your death, you will receive some money back. In most cases, you can even borrow against that value.
Who should buy whole life insurance: Whole life insurance is ideal for people who have some financial security and want to protect their family for the long term. It has the benefit of being a very hands-off investment, and also acts as an asset in its own right.
Universal Life Insurance
Universal Life Insurance also promises a death benefit on any timeline, but it is designed to give you much greater control over your money. In this type of policy, part of your premium payment goes to your death benefit while the other part goes towards a cash account. Your premium will then fluctuate depending on how the cash fund investment is doing. This has the considerable benefit of a variable premium, which means you could potentially end up paying less for your premium.
Who should buy universal life insurance: This is the perfect policy for those who want to have control over their investment, are willing to accept some risk in exchange for the possibility of lower cost.
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