Although it may not be a pleasant thing to think about or discuss, the topic of life insurance will eventually come up at some point in your lifetime. Having life insurance can help your family and loved ones continue to live a comfortable life if anything were to happen to you. Since life insurance can be an issue that many people do not want to discuss, it is important to make the process of finding life insurance as easy as possible. In order to do this, you should have a basic understanding of the different types of life insurance. Having a grasp on what the different types of life insurance are, how they work, and their advantages and disadvantages of each type will help make the process of finding life insurance a less stressful experience.
The first type of life insurance is called term life insurance. With this type of life insurance, you will purchase it for a specific term. For example, you can buy term life insurance for a term of 10 years. You will pay premiums for the length of the term. Once the term is up, the death benefit is gone. Your premium is used to keep the policy active, so there is no cash value component with this type of plan. You will pay premiums until the term is up. Once the term is up, the policy will expire. One of the advantages of this type of life insurance is that it is relatively inexpensive. You can also buy as much coverage as you need because of the specific coverage periods, meaning you will not overpay for your life insurance. A disadvantage to this type of life insurance is that if you decide that you want to extend your coverage after the term you have chosen, you may have to undergo what is called proof of insurability, and you may not be able to get coverage.
The next type of life insurance is called universal life insurance. You will not set a specific amount of time with this type of insurance. With this type of life insurance, you will pay a premium, but some of that premium will go into a cash account in the policy. The cash account will earn interest and will accumulate tax-deferred, which means that the money will not be taxed until it is taken out of the account. One of the advantages of this type of plan is that you can stop paying premiums on the policy as long as the cash value can cover the cost of the insurance. One disadvantage of this plan is that it is more expensive than other plans. Although the added cost will be going into a cash account, the rates that are earned on that money may not be the best rate out there.
The next type of life insurance is called variable life insurance. This insurance is like universal insurance, but instead of earning a specific rate of interest in a cash-value account, you are able to invest a portion of your premiums into different investments. One of the advantages of this plan is that you get to choose how to invest your money in order to make a profit. The disadvantage to this account is that you could make risky investments if you do not invest wisely, and you can actually lose money.
The last type of life insurance is called whole life insurance. This type of insurance will insure the policyholder for their whole life. The premium and death benefits with this type of plan are fixed. There is also a cash value component along with this type of life insurance. One of the advantages that come along with this type of insurance is that there are no surprises with this type of plan. You will have a guaranteed premium, interest rate and death benefit throughout the life of the plan. One of the disadvantages to this plan is that this policy is not flexible. If you want more coverage or want to increase or decrease your premium, you will most likely not be able to.
Although looking at life insurance is not the best topic to discuss, it is an important one. If you understand the basics about the different types of life insurance, you will be able to make purchasing life insurance an experience that is nothing to worry about.