Types of Life Insurance

Why is Life Insurance Important?

There are many different types of life insurance protection available. Policies can vary in structure, costs, length of time and benefit amounts so it is very important for you to know exactly what you want to include when you start shopping for a policy for yourself.

Life Insurance is one of those things that many people are very nervous and uncomfortable about thinking of because no one wants to think about their not being with their loved ones anymore.  However, the reality of the situation is that approximately 11 million households in the United States that had underage children had no life insurance as of 2010.

The ramifications of this is great, meaning that if the person that makes the money in the household died unexpectedly, the loss of income could very easily push the family into poverty and/or homelessness.

For this reason it is extremely important to be able to take care of these things NOW, before it’s too late to do anything to protect your family. While the topic may not be preferred, knowing that you have protected and planned for your family’s future in the event of a tragedy can bring you a lot of peace of mind.

Even if you are single, it is important to think about these matters and prepare so no one else is burdened with expenses that may be left behind, including burial expenses which are rising every year.  It is one of the most responsible actions you can take for yourself and loved ones.

Whole Life Insurance

A whole life insurance policy means that you will be protected for your entire life.  It is permanent coverage that doesn’t run out due to age or time frame.  With this type of insurance policy, there is cash value that grows.  The amount it grows is in the contract and is guaranteed as well having a low interest rate.  It is also tax deferred during the contract lifetime.

Premiums in a whole life insurance policy typically stay the same for the life of the person insured and the benefit is also guaranteed for life.  It is seen as one of the more stable and protected forms of life insurance.

The payments you make to a whole life insurance policy are divided into three different areas.  One part of the payment goes toward the insurance itself. A second portion is applied to administrative expenses, and the final part goes toward the part of the policy that is the cash portion. This is also known as the investment portion of the policy.

One of the many benefits to a while life insurance policy is that any interest that is accrued from the part of the portion that is invested, will not be taxed until you withdraw it, if that is allowed with your particular policy.

Term Life Insurance

term-life-insuranceTerm life insurance means that the insured will pay for a fixed term. During that time frame, as long as premiums are made on time, then the person is insured for the purchased amount.  Unlike Whole Life Insurance, Term Life does not have cash value outside of the death benefit.  In other words, you can’t take cash out of the policy while you are alive.

Term life Insurance is usually the least expensive of all the types because it is only for a fixed amount of time which can range anywhere from 5 years to 30 years.  Depending on the insurance provider, most people who get term life insurance try to ensure that their premiums remain fixed for the term of the policy.

The drawback to this is that there can be a potentially high increase in premiums if the initial chosen term runs out and you purchase another policy.

Universal Life Insurance

universal-life-insuranceA Universal Life Insurance policy has the benefits if both whole and term life insurance.  One of the biggest draws that the Universal Life Insurance policies have is that you have the ability to vary your premium amount by using some of the earnings that have built up to apply to some of the premium amounts.  These policies are tax free and have cash value like the whole life plans do.

You can also adjust the death benefit amount as well. This flexibility doesn’t come without a cost though and the administrative fees are higher as well.  Comparatively, you will find the price of Universal Life Insurance policies less expensive than whole life but more expensive than term life.

Universal life insurance policies are good choices if your income varies. All that is required is that you pay enough in premiums to keep the policy in effect.

Variable Life Insurance

The most expensive of all of the insurance policies offered, variable life insurance has some risk to it. The cash that is accrued with a variable life insurance policy can be used to invest in anything the insurance company offers.

If the investments that you choose from the insurance company do well, the cash value of your policy does well. On the flip side, since these types of policies depend on how well the stock market is doing, your policy can decrease in value rapidly as well.

Basic Types of Life Insurance Explained


Final Thoughts

Make sure that you know what your specific needs are when it comes to a life insurance policy. That will make it much easier to figure out which policy will best fulfill those needs.  Budget is also a factor. Policies will cost less per month the younger you are when you get started, so that is a good thing to keep in mind.  It is never too late to provide your family with protection in the event of a premature death. Even though it is not easy to do, your family will know just how much you cared about them even after you are gone.