We might have been happy and satisfied living the life that we have right now. However, we would not have an idea as to what will happen in the future. Thus, there is a need to secure it.
When buying life insurance, you might be overwhelmed by countless information. To protect your investment and future from wrong options today, it will be imperative to recognize and understand first the basics.
What is Life Insurance?
Life insurance is a term referred to a means of providing financial protection for a predetermined time frame such as 10, 20 or more years. The process involved signing up a contract with a chosen insurance company. The policyholder will be required to pay premiums in exchange for the payments that the insurance company provides to beneficiaries upon the death of the insured.
Types of Life Insurance
Life insurance comes in numerous types including term-life insurance, universal life insurance, whole-life insurance, variable life insurance, and cash-value life insurance.
Term-life insurance
This is the most common type and the easiest to understand. This is usually available for a predetermined time frame such as 10, 20, or 30 years. With an “annual renewable”, the policy will automatically be renewed but will also have increase the premiums. Insurance buyers can either choose level-term or decreasing term insurance. The latter has fixed premiums but the benefit “decreases” overtime while the level-term stay as is within the policy duration.
This is the kind of insurance coverage that does not build cash value from the insurance policy. People usually avail this kind of insurance because they wanted to ensure death benefit over a specific time frame.
The premiums for its coverage are lower as compared to the other types of life insurance. This is because the death benefit is only available over a defined period. However, one have the option to extend it. What is great about this kind of insurance is that it allows the one insured to covert it into another type of coverage. However, when they decided to do that, they can expect that the premium would definitely higher than their previous one.
Universal Life insurance
This policy provides greater flexibility than term or whole life. It provides lifetime coverage. Generally, this policy involves numerous moving parts that buyers need to understand but some just works like term insurance.
It provides the insured an opportunity to both build cash value and acquire death benefit. What makes this one different from the others is the limits of its policy. Depending on your insurability, you could even either decrease or increase your death benefit as well as the timing and the amount of the premiums of your life insurance. In other words, you can pay for the premiums, depending on your circumstances, which is truly great.
Whole-life insurance
This provides permanent protection. The premiums and the benefits remains as is as long as the policyholder continue paying the premiums.
This kind of insurance guarantees protection for the entire lifetime of the one who have availed it. It is also known as the permanent coverage. This usually involves a low interest rate until the contract has been surrendered. With this kind of insurance, death benefit is also guaranteed.
The accumulated interest of your policy’s investment portion is also tax free until you have withdrawn it. Of course, if your policy’s terms allows it. It also guarantees cash value that the insured could use while they are living and the flexibility of the premium is fixed.
Variable Insurance
This provides death benefit along with a side fund that works similar to an investment account. Insurance companies usually invest the premiums on the policyholder’s fund option.
This kind of insurance policy was created to combine savings features as well as protection of the whole life type of insurance with the investment funds’ potential growth.
It is comprised of a separate account or investment funds and a general account or the liability account. Due to the things mentioned and due to the name itself, the death benefit as well as the cash of the insured may fluctuate, depending on various factors.
The things listed above are the 4 main types of life insurance. The article aims to make your decision making stage much easier. Moreover, with that, you can ensure that the one you are about to purchase is truly the one you needed.