Different Types of Life Insurance

An Overview on Different Types of Life Insurance

These days, unpredictability has become synonymous with our lives. Life insurance acts as the guiding spirit for your loved ones in your absence. Enlisted are a few of the many types of life insurance policies along with their suitability.

Term Life Insurance Term Life Insurance has a fixed duration, ranging from 1-30 years. If the insured dies within this time, the insurance company pays the death benefit. When the term ends, the insurance ends. It has the lowest premiums. There is no cash value in a term life policy.

Suitability: Term insurance is ideal those who seek low premium payments, even if that means death benefits for a limited period of time and no cash value.

Whole-Life Insurance Whole-life insurance pays a death benefit no matter when the insured dies. The premiums are usually much higher than a term policy and the full premium must be paid each year.

Whole-life policies carry a certain cash value. This cash-value account helps the insured to pay the "fixed" premiums in later years. The policy owner may borrow against the cash value or receive the cash value if the policy is cancelled. At death, the beneficiary receives the death benefit only.

Suitability: This type of insurance fits those who want a guaranteed death benefit without considering how many years the insured lives, and who have enough money to pay the premiums.

Universal-Life It gives the policy owner the choice of changing the premium and even the death benefit.

For example, the owner may decide to double the premium paid one year. The extra money goes to the cash-value account. They may also decide to use money in the cash-value account to pay the premiums. Policy owners may have a higher death benefit while their children are young and a lower the death benefit once their children are grown.

The policy owner needs to be careful not to pay too little, and end up with no cash value. If this happens, and the owner still wants the insurance, they would need to buy a new policy.

Suitability: Universal-life works well for people who want lifetime coverage with added flexibility.

Variable Universal-Life This type of insurance allows the cash-value account to be invested in stock funds, bond funds, and other assets (much like mutual funds). These funds allow the cash value to increase at higher rates than fixed-rate whole-life or universal-life policies. However, it also comes with a risk factor in the sense that these funds may also incur losses. Many variable policies also offer a fixed account with a low guaranteed interest rate as an option. The owner may need to pay more premiums to keep the policy alive if the returns are low.

Suitability: This is for people who want lifetime coverage, and who can tolerate risk. The owner would prefer to invest money in stocks and bonds than in safer assets.

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