The Various Sorts Of Life Insurance
Many of us don't understand why they need life insurance, what kind of policy they should buy and when they should buy it. Life insurance as a package contains different provisions, clauses and options that determine the type and width of the cover. When thinking of insuring your life, it is very important to comprehend the different kinds of life insurance.
When navigating through the life insurance industry, you ought to be bound to meet a number of different policies. These include permanent policies such as whole life policy, universal life, variable life, variable universal life policy and term life insurance. The biggest difference between permanent and term life polices is that permanent policies contain an investment part while a term policy doesn't. The following are a number of these policies explained.
Term life insurance. This policy covers the insured for what is sometimes a relatively short time period. You buy the insurance for a particular term or a set period of time. The insured pays premium for the entire length of the policy and when the term is up, the death benefit is gone. A definite characteristic of this policy is that it doesn't have a money value component therefore the whole premium is just used to keep the policy alive.
Categories of term life insurance. Level term —the premium and death benefits doesn't change across the policy’s length. Decreasing term — in this model, the premium stays the same while the death benefit reduces yearly. Annual replaceable term — with this model, the death benefit is the same but the contract is replenished annual and this is mostly done with a rise in the premium’s rate.
Universal life. This policy is a kind of an everlasting life insurance policy which combines term insurance with a cash component. In this policy, instead of selecting a particular term and placing a 100% of your premiums toward it, part of the premium will go to a cash account. The insured hence makes a market investment by getting interest on the part of premium and amasses tax-deferred.
This model is advantageous in the sense that it adds more flexibility and you can earn even temporarily stop paying premiums once your cash account can cover the costs. Nevertheless this option is comparatively more expensive if compared with term life.
Variable universal life insurance. This policy is similar to a universal life but with one major distinction. With this model, the insured is not earn interest on the money —value fund, but can instead invest this portion in other investments such as retirement funds. The insured is however assured of the minimum death benefit.
Whole life insurance. This policy is supposed to provide insurance cover to the entire life of an insured. This is the most simple of cash value life insurance. In case the beneficiary dies, a fixed death benefit is paid alongside with the balance of the deposit account. With this model, you've got a guaranteed death benefit, premium and interest rate. But the policy isn't flexible and is usually more expensive than universal and term life insurance models.
There are different kinds of life insurance policies. While choosing one, it is important to ensure you select the most suitable type. You can attain such a choice of you take time and learn about the pros and cons of each model.
Lillian Burn would like to thank Richfield Allstate agent Chris Pike for his guidance on life insurance policies that was used in writing this article.