Are you looking to join the 60 percent of Americans who already have life insurance?
If so, you’re making a sound financial decision that will have a big impact on your dependents. When you pass on, your family will receive death benefits, which will help them stay on their financial feet.
But if you know anything about life insurance, you’re certainly aware that there are several life insurance types, and they’re not created equal. In this article, we’re digging into the most common life insurance policies and how to pick one that suits your needs.
Read on!
Term Life Insurance and Permanent Life Insurance
Broadly speaking, there are two types of life insurance: term life insurance and permanent life insurance.
Term life insurance, which is the most common type of life insurance, provides coverage for a certain, fixed period of time. For example, if you buy a 10-year, term life policy, you’ll have coverage for the 10 years. If you die within this period, your beneficiaries will receive your death benefits (a cash payout), as long as the cause of death is as defined in the policy.
What if you outlive the policy? Well, you’ll lose your coverage. However, most term life insurance policies allow policyholders to extend the term limits once expiry nears.
Permanent life insurance is just that, permanent. When you buy this policy, you’re covered until the day you die. In other words, the policy doesn’t expire.
The Different Variations of Permanent Life Insurance
Permanent life insurance has a couple of variations. However, they all have one thing in common: permanence.
Let’s look at the two most common forms of permanent life insurance:
Whole Life Insurance
Whole life insurance covers your entire life, but it’s more than just a life insurance policy. It’s also an investment tool. It’s, for this reason, whole life policies are also known as cash value life insurance.
When you pay your whole life insurance premiums, a portion of the premiums will go into the savings component. This money will earn interest, and you can borrow against it.
Premiums for whole life insurance are usually fixed. Your first monthly or annual premium is what you’ll pay every time payment is due.
Universal Life Insurance
Universal life insurance is similar to whole life insurance, except for one important aspect: flexibility.
When you have universal life insurance, you can adjust the premiums, as well as the death benefit amounts, within the allowed limits. This is handy during times of financial hardship since you can lower your premiums accordingly instead of defaulting and losing coverage.
Choosing the Right Life Insurance Policy for You
When you’re looking to buy a life insurance policy, a lot depends on your financial situation, age, and health status.
The younger you are, the cheaper your premiums will be. At this stage, it’s advisable to purchase any variation of permanent life insurance. If your finances aren’t steady, though, universal life insurance is more suitable.
If you’re older and your health isn’t so good, term life insurance might be more attractive.
Evaluate These Life Insurance Types to Find the Right One
Life insurance is a must-have for anyone who has dependents. When you die, you don’t want to leave them without adequate finances. Life insurance fills this gap.
With this guide, you now know the different life insurance types and how to choose the best for you.
Keep reading our blog for more informative articles.
