Types of Life Insurance
Life insurance is a part of life that many adults don't like discussing. But it is an extremely important part of everyday living - particularly as you are planning your things, preparing for retirement and working to protect your loved ones for years to come. If you are considering purchasing a plan, remember that there are a wide variety of insurance products offered. Through using the Internet, you can research product types and procedures, as well as apply for a plan online and review competitive quotes from several different providers. This guide can help you determine which plan is best for you.
Types of coverage
- Term: Probably the most common form of plan discussed, this is generally considered the least expensive protection that's offered. If you select this option, you will receive coverage for a set term (number of years). Typically, these policies last from 1 to 10 years. You are eligible to renew a policy once its term is complete, but it will likely cost more to renew. The younger you are, the less expensive it is to purchase term protection.
- Declining balance term: If you understand the way your mortgage works, you will understand this type of plan. In this case, your premium will remain the same over the term of the policy, while the value of the policy declines. Many insurance companies use this coverage in the form of mortgage insurance and write the policy to match the amortization of your mortgage. This form of insurance does not come with an investment option - it's considered a "pure" type of insurance.
- Whole: This is the combination of permanent insurance coverage with an option for investment. You will pay into the policy, which will gain value over time. Part of your contribution will grow as a cash value, which you are eligible to withdraw. There could be tax benefits from this - check with your accountant.
- Universal: Is similar to whole life, but has more flexibility and options. If you select this plan, you are able to increase or decrease your premium, as well as make withdrawals. Sometimes, the provider will offer a guarantee on the policy's return - ask to find out whether this is an option on your prospective policy. This policy also tends to have much higher fees than term offerings.
- Variable: Generally speaking, this coverage offers fixed premium costs. You can choose the way it is invested, such as in stocks, bonds or money-market funds. Because of market conditions, this also means that the value can fluctuate greatly. Find out if death benefits have a ceiling or floor with this type of policy, and also inquire about the tax implications associated with this product.
- Universal variable: This is considered the most risky kind of offering because it is extremely aggressive. In this offering, you also invest in mutual funds, but there are no guarantees about the value of death benefit. Purchasers of this type of protection are generally very risk-tolerant.