We all know that the most important type of coverage protection is life insurance, but finding the appropriate one could be challenging. You can easily encounter different phrases and policies such as cash value, term life, variable life, whole life, which could be confusing if you are a beginner.
So it is vital to differentiate these types so that you can make up your mind. Most companies nowadays are using software for insurance policies because that is the best way for them to maintain the database.
It is essential to make sense and to help you understand all policies and their advantages as well as disadvantages.
Term Life Insurance
Term life is not too challenging to understanding, because the idea is to purchase the coverage for a specific period or term, and it can be from 5 to 30 years. You should pay premiums throughout the entire length term, and as soon as it expires, the policy does too.
Therefore, if you pass away before the term ends, your beneficiaries will get the entire benefit. It can be between five thousand, and it can reach even up to five million based on your wealth and coverage that you choose.
It is the most affordable type of insurance, and premiums are based on the coverage that you choose and your overall health. The healthier and younger you are, the cheaper it will be.
We can break down term life into three different sub-types:
- Level Term – Your death benefits and premium will remain the same all the way, and it doesn’t matter which period you choose.
- Annual Renewable Term – This particular type of term life coverage means that death benefit will remain unchanged throughout the term, while you will renew the contract on an annual basis, which means that the premium will increase each year. The idea is that premiums could be less than level term policies, but it can become more expensive in the long run.
- Decreasing Term – The death benefit will decrease each year, while your premiums will remain the same. As soon as your death benefit reaches zero, the policy will end.
Pros:
- It will offer you the flexibility to choose the coverage that you can afford
- You do not have to pay for the entire life
- You will get appropriate protection in case of sudden death or disability
Cons:
- It won’t accumulate cash value
- You will have a specific term
- You will have to provide proof of insurability to extend your coverage after the time passes
Universal Life
This particular type of protection is the permanent insurance that will cover you for entire life, but you will also get cash-value addition when compared with the previous one. Instead of selecting the term you’ve specified, you will be able to create a premium that will go into a cash account.
Pros:
- It will provide you with much more flexibility than term life
- Since it features cash component, you can stop paying premiums because cash value can cover it instead
- You can also decrease and increase death benefit over time
- The cash account is tax-free
Cons
- It is permanent coverage, so you have to pay for an entire lifetime
- It is a long-term investment with low rates when compared with mutual funds and stocks
You should click here to learn more on this particular type of coverage.
Variable Universal Life Insurance
This is very similar coverage as universal life, but it features one significant difference. With this particular policy, you won’t be able to get a specific rate of interest when it comes to cash-value account, but you can invest some of it into mutual funds or use it any other way to boost your balance.
That way, you will have more control and higher returns on investment when compared with universal life.
Pros:
- You will get minimum death benefit as long as you are keeping up with the premium
- You will get the ability to invest in various investments so that you can increase the balance
- You can take advantage of tax-deferred earnings
Cons:
- Using the portion of the policy is the risk that you have to take because you are putting everything in jeopardy
- You can notice a drop in account value which will force you to pay more premiums so that you can keep up with the policy
- Expenses are more significant than universal life insurance.
Whole Life Insurance
The name implies that you will get coverage that will last for your entire life. Similarly, as universal life, you will also get cash value component, but death benefit and premium are fixed. If you purchase this particular cover as the younger person, you will have low premiums.
Check this website: https://www.investopedia.com/terms/w/wholelife.asp to see everything about whole life insurance.
Pros:
- You won’t get any surprises, which means that everything is guaranteed
- Cash value if tax-deferred and you can withdraw and make loans
Cons:
- More expensive than other types of policies
- Less flexible, so you won’t be able to change the death benefit
