Life insurance is an important companion to health insurance. It is a contract between a policyholder and an insurance company that guarantees a named beneficiary will receive a death benefit if the policyholder dies. Life insurance is based on the need of the policyholder. When looking at plans, you need to decide what kind you need, there are quite a few different types.
What To Consider
The first thing to consider when looking for life insurance is how long you’re wanting coverage. Term insurance plans are set up to only last a certain amount of years, whereas permanent insurance is set up to last until a policyholder passes away. Next, you should consider how much life insurance you want. That will determine what your monthly premium payment is. You should consider if at any time you’ll want to borrow from it. Certain types of insurance plans have a cash value you can take a loan from. A beneficiary is someone who will receive the money when a policyholder dies. That is something to consider when looking for policies also.
Types of Insurance
The main types of life insurance are term and permanent. Term insurance plans can be bought in many different year spans. There are quite a few such as yearly renewable, 5-year renewable term, 10-year, or 20-year. There is even a 30-year term insurance plan. Permanent insurance has five main types. Those types are as follows:
- Variable Universal
Term Life insurance is a type of policy that only covers a specified amount of time, usually 20-30 years. These plans are much less expensive than other types of plans. That is because there is no cash value until the policyholder passes away. If a policyholder outlives their policy, they can renew a policy for longer if they want. Term insurance is most affordable when you buy at a younger age. The younger you buy insurance the less risk you pose for insurance companies.
Whole Life Insurance
Whole life insurance is permanent, which means it will cover the policyholder for the duration of their life. A policyholder must make the payments on time for the policy to stay active. Along with paying out a death benefit, whole life insurance policies carry a savings component that will accumulate cash value over time. The savings component can be invested or the policyholder can borrow against it whenever they want. This can serve as a source of equity.
Universal life insurance is permanent with a savings element, but low premiums like term insurance. Most of these insurance policies have flexible premium options. Some require a single premium (single lump-sum) or fixed premiums (scheduled). These policies usually have the minimum premium payments required to keep the policy active. They can change while active. Policyholders can change their premiums and death benefits. Policyholders can remit premiums that are more than the cost of insurance. The excess premium is added to the cash value and accumulates interest. Policyholders can make withdrawals on the cash value, but they will have to pay taxes on that money.
Come back next week to continue learning the different types of life insurance and what kind of benefits they have to offer.