When it comes to life insurance, the choices on what type of policy to get can be perplexing. How do you know what type of policy is right for you? How do you know the type of coverage you will want or need? It is not a topic many people like to discuss, but is a major decision that everyone has to make in life. However, with a little knowledge on the basics, selecting the right life insurance policy for your needs is simple. Let’s take a look at the different types of policies and what they offer.
Term Life Insurance
This type of insurance is the most affordable because it only covers a specified period of time, usually 10 to 30 years. Each year you pay a premium that will cover you for that specific year. If you die after that coverage period, your family will get nothing. Something to keep in mind is that term life does not have a cash value like other coverage policies. However, this type of policy is best for those who have financial needs that will decrease over time. If you foresee you and your family having financial needs that will not decrease, such as paying off your auto loan or mortgage, then this is more than likely not the policy for you.
Permanent Life Insurance
Whole life insurance is different from term in that it does not cover a specific period of time. As long as you pay your premiums, you will be covered. This type of insurance is expensive however. With term, you were only paying for life coverage and nothing more. Once you pass away, the policy pays the face value of the coverage to your beneficiary. Whole life policies are more expensive because you are not just paying for the insurance, but also the investment part as well. Your insurance company will invest the money you put in your policy for a return. The added benefit of permanent life insurance is that over time, it builds cash value. This is not built up quickly and takes an extended period of time, and you do not have control over how it is invested. But it offers you with a financial asset in you later years should you ever need it.
This type of coverage is the most expensive mainly because you get to decide in how to invest the funds in the choices offered by the insurance company. How well your policy grows depends on the investments you chose. With the investments being placed in the stock market, you’re just as apt to lose money as gain.
Universal life is a mix of term and whole life insurance. You can use part of your accumulated earnings to vary the amount of your premiums and you can also vary the amount of your death benefit. You will pay more in administrative fees with a universal life policy, but when compared to whole life, the premiums are usually cheaper.
Now that you have some basic knowledge of how the different types of life insurance policies affect you, start looking around for policies that best suites yours and your loved ones needs. Take your time and shop around for the best rates. With a few punches of the keys on your computer, you can shop for life insurance without leaving your home or be pressured by a sales agent.