Life insurance is a financial product that covers a person’s life. In other words, if the insured person dies during the duration of the policy, the insurer pays the beneficiaries a claim. Any person or organization can be chosen as a beneficiary, including a child, spouse, or trust. Usually, the payout (or death benefit) is the same as the policy’s total amount of insurance.
To keep the coverage active, you must pay premiums in monthly, annual, or lump sum amounts to keep your policy active and up-to-date.
However, there are different types of life insurance, and some policies provide more than just coverage.
Term Life Insurance
Term life insurance protects you for a predetermined time, typically 10 or 20 years. You can tailor a term length to your needs, and your beneficiaries will receive the payout if you pass away during that duration. When your term insurance expires, you can either purchase a new policy or reconsider your options.
Term life insurance policies have the least expensive coverage and do not accumulate cash value.
Permanent Life Insurance
Permanent life insurance policies cover you for the rest of your life. They typically accumulate cash value, which you can borrow against while you are still alive. Here are the most common types of permanent life insurance:
– Whole Life Insurance
Whole life insurance provides lifelong insurance and an investment component. However, the guarantees offered by whole life insurance are its primary benefit. Whole life premiums are guaranteed to remain constant for the duration of the policy, the cash value grows at a fixed rate, and the death benefit remains constant.
– Universal Life Insurance
Universal insurance offers more flexibility than whole-life insurance. You can either increase your premiums to help boost the policy’s cash value or decrease your premiums if the cash value is sufficient to cover the difference. You can also increase or decrease the coverage if your insurance requirements change. In contrast to whole life insurance, universal life insurance bases its cash value on fluctuating market interest rates.
– Indexed Universal Life Insurance
Indexed universal life insurance is similar to universal life insurance, but the cash value is typically linked to a stock index. The same adaptability applies to coverage: You can modify your death benefit and premiums as your needs change.
– Variable Universal Life Insurance
Variable universal life insurance provides the same level of flexibility as universal life insurance. You have the option to change your death benefit and premiums. However, you can link cash value to a broader range of investments, such as mutual funds, stocks, and bonds.
Term or Permanent Life Insurance: Which Is Preferable?
When it comes to choosing between term and whole life insurance, the two most important factors to consider are the cost and length of coverage. For the majority of people, term life insurance is sufficient. It is typically less expensive than permanent life insurance and lasts for a set number of years. Depending on your needs, you may prefer a permanent policy, which provides indefinite coverage and includes a cash value component.
