When it comes to the many things that can happen in life, your death or that of a family member can cause extreme devastation – both financially and emotionally. One of the best ways to be fully protected is by having the proper amount of life insurance to protect your family and dependents when you are no longer available to care and provide for them. Life Insurance comes in three types.
The one that is right for you often depends on many factors like cost, age, health status, dependents, and the amount of insurance you need to take care of your responsibilities. Before you decide what type of insurance will service all of your needs in the event of your death, it is important to decide what your actual needs are. The three types of life insurance to choose from are:
Permanent Life Insurance
A permanent life insurance policy is one where you can pay a premium throughout your life and the benefits will pay out to your dependents or beneficiaries at your death. There are usually “cash value” benefits that act like savings, accruing over the years. The three types of permanent life insurance types are variable, whole, and universal.
Whole Life Insurance comes with a premium that will stay static for the life of the policy term. Although the payments might seem like more than what you can pay for another type of insurance upfront, over time, the insurance will accrue cash value. And you might also be able to borrow against the cash surrender value of the policy for face value if you ever need to.
If you do borrow against the cause value or death benefit, it might increase the risk of policy lapse or open you up to tax liability if it terminates before the insured passes. There might also be payments required out-of-pocket if investment or dividend returns go down.
Universal Life Insurance
Universal Life Insurance takes whole life insurance one step further. You will have the same cash value and coverage, but with more flexibility. Once you accrue money regarding the cash value, you can sometimes vary how frequently you pay in and the amount that you want to spend on your premium.
There might be a time when the case value increases to the point where it can actually cover your premium costs. But if you do alter your premium amount, it can result in a decrease to your death benefit, so be careful to obtain guidance about any changes that you are considering.
Variable Life Insurance
Variable Life Insurance protects you with the same benefits as other types of permanent life insurance packages. Typically, however, you control how your cash value is to be invested, be it bonds, money market, or stock funds. Depending on where you invest, there is the potential to grow your investment more quickly, but there is also risk involved with your choices. When your investments do well, your cash value increases; however, if your investments don’t, your value will decrease.
In a variable life insurance package, your premiums are fixed, which means that you cannot adjust them according to how well your investments are doing or not doing. Variable universal life combines universal and variable to give you the option to adjust both your death benefits and premium payments.