When it comes to exploring your life insurance options, you might be feeling a bit overwhelmed by all of the options that are out there. The reality is that insurance companies are offering a wide variety of different types of insurance policies in an effort to meet the needs of a very diverse population.
While this is helpful to those who need a very specific type of policy, it can make the process of finding a life insurance policy somewhat confusing for those who are not too familiar with this type of coverage. As such, it is important for you to know that there are four basic types of life insurance coverage available. Here is a closer look at what is out there and the pros and cons that each type has to offer.
Whole life insurance is a form of permanent insurance. As such, it stays in place until you either cancel the policy, stop making payments or pass away. This type of life insurance is beneficial because it serves as a type of investment that increases in value with each passing year. In addition, you can borrow against the policy as necessary.
Furthermore, if you start the policy while you are young and healthy, you can get locked into a great low rate that will never change so long as the policy is in place. On the other hand, maintaining a whole life insurance policy until your golden years may be an unnecessary expense.
Universal life insurance is another form of permanent life insurance coverage, but you usually do not receive a guaranteed rate of return. This is because the money you pay toward your premium payments is put toward making market-type investments, which means the value of your policy will fluctuate with the market.
Variable life insurance is also a permanent policy without guaranteed returns. With this type of policy, you control where the investments are made. As with universal life insurance, however, the value of the policy will fluctuate according to the stock market, the bond market or the mutual fun market.
Unlike the other forms of insurance, term life insurance is not a permanent policy. Rather, the policy is only in place for a pre-determined period of time, typically ranging anywhere from one to thirty years. Although a term life insurance policy may be renewable at the end of the predetermined period, the premiums will often be far more expensive than they were on the original policy.
In most cases, a term life insurance policy is the best type of policy to purchase. Not only are the premiums lower on term policies, but most people simply do not need to have a permanent policy in place. Remember, a life insurance policy is meant to provide financial support to your dependents after you have passed away.
Unless you have an adult child who is dependent upon you or a spouse with special circumstances, you likely don't need to have a policy in place into your golden years. At the same time, if you want to reassurance that your policy will always be in place, a whole life insurance policy is the way to go.