Living (and loving) Life
There are several different types of life insurance plans on the market today.
In order to choose the plan that is right for your situation, taking the time to learn about each option is very important. Here are overviews of the four main types that you should investigate.
Term Life Insurance
Far and away, term life insurance is the simplest. With this coverage, you pay a fixed premium every month, in exchange for your beneficiaries receiving a lump sum payment in the event of your death.
In many instances, there is no need for any type of physical examination or review of your medical history. Plans of this type are not affected by changes in your health status.
Keep in mind that with this insurance plan, the coverage is only good for a specified term or duration. This means that if you go with a 30-year term and don’t die within that span of time, your beneficiaries receive nothing. In addition, term plans don’t generally accrue cash value and there is no type of dividend issued.
Whole Life Insurance
With whole life, you are covered for as long as you live and keep up the monthly premiums. Many plans of this type also earn cash value, meaning you can use that value as an asset to borrow money. In addition, some whole life plans will provide some sort of dividend payments or add interest to the cash value over the life of the plan.
Depending on the exact structure of the plan, you can either use the cash value as collateral for some sort of loan, or borrow a certain amount of that cash value directly from the insurance provider. Should you pass away before paying the loan in full, the provider will deduct the remaining balance of that loan from the benefits before settling the claim with your beneficiaries.
Universal Life Insurance
Universal life insurance is worth considering if you have the resources to make a lump sum payment on the front end, and manage monthly, quarterly, or semi-annual payments moving forward.
This type of insurance is often a good idea if you want to add an investment component to your insurance plan. In most cases, the provider chooses how to invest the money and crediting returns to your account. Some plans of this type come with a fixed premium, but there are also plans that may call for a premium that increases as you get older.
Keep in mind that with most universal life policies, the range of investments involved is usually somewhat limited, sometimes to nothing more than bonds or mortgages. This is not necessarily a bad thing, since those two investment types tend to be somewhat less volatile and more likely of producing returns on a fairly consistent basis.
Variable Life Insurance
Variable life coverage functions a great deal like universal life, but offers the policyholder access to a wider selection of investment opportunities. If the investment component is really important and you want to make sure those investments are more diversified, this approach is a great option.
Pay close attention to the terms and provisions of the plan, including how funds are disbursed to your beneficiaries or to your estate.
Consumers who can afford to provide a significant payment up front to establish the policy and who want more control on how the funds are invested will find this type of plan worth considering. Keep in mind that more investment choices does mean access to stocks and other investments that may be more volatile than the safe investments used with many universal life plans.
At the same time, that greater risk also means the chance for larger returns. If you do well with choosing lucrative investments, this type of plan can maximize your returns and allow you to build additional cash reserves for your loved ones.
About the author: Erica M. White is an independent journalist who frequently blogs about Insurance and Smart Budgeting.
Credits: Photo courtesy of Torsten Hofmann.