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Types of Life Insurance
Life insurance is an agreement between a company (insurer) and an individual (policyholder) that guarantees the insurer will pay a lump sum of money to the policyholder’s beneficiary upon the death of the policyholder. There are a few basic types of life insurance, whole life insurance, term life insurance, and universal life insurance. What type of insurance is best for you? Read on.
Whole Life Insurance
Whole life insurance is straightforward insurance that remains in force for the policyholder’s entire life. The policyholder pays a yearly premium to the insurer for a set amount of benefit. The benefits of whole life insurance include:
• Guaranteed benefit
• Guaranteed cash value
• Fixed premiums
Term Life Insurance
Term life insurance is life insurance provides insurance for a specified term (amount of time) for a specified premium (amount of money policyholder pays) for a specific benefit (value). Term life, called pure insurance, premium payments buy protection for the beneficiary in the event of the insured policyholder’s death solely. The three factors to consider before purchasing term life insurance are:
1. Face amount of the policy (the benefit to be paid)
2. Premium to be paid (the cost to the policyholder)
3. Length of coverage (the term or length of time the policy covers)
Universal Life Insurance
Universal life insurance is a permanent form of life insurance based on a cash value basis. The policyholder establishes a benefit for the policy; the insurer charges a monthly premium where the payments above the cost of insurance (the amount the insurer charges for the policy) are added to the value of the benefit. The cash value (amount of premium above the cost of insurance) is credited to the benefit each month with interest, determined by the insurer. Universal life insurance is credited with being a good investment because the amount of interest varies and not the policy amount. Universal life insurance is very flexible. In addition to providing life insurance to your beneficiary universal life also provides some additional benefits. Some of the benefits of universal life insurance include:
• You can borrow or withdraw money from the policy during your lifetime.
• You can earn tax-free market rate interest on the cash value of your policy.
• You have great flexibility in determining the face value amount of the policy and the premium payments you pay per month.
Check with your insurance agent to get the best rates and terms when you decide to buy insurance.
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