Forms of Life Insurance
Fundamentally, life insurance comes in two different forms: term and permanent life. Within the category of permanent life, there are three types of coverage: whole, variable, and universal life. To help you choose the right health and life insurance coverage, we've summarized each of these types of life insurance plans below.
Term Life Insurance
Term life plans are intended to give the policyholder time-limited coverage. Once the term of the policy expires, the coverage ceases and the policy becomes worthless unless it is renewed. Term life policies commonly have terms of 10, 15, 20, and 30 years. People in the market for health and life insurance often choose term life because it typically provides the maximum amount of coverage for a minimal cost. Term life is also ideal for those with young children because they can structure the policy to stay in force until the children are grown and no longer dependent financially. The primary disadvantage of term life is that the premiums will increase as you age, so the policy could become unaffordable when you get older.
Whole Life Insurance
If you need health and life insurance but would also like to use your policy as an investment tool, whole life is an excellent option. Whole life insurance plans provide uninterrupted coverage as long as the premiums are paid on time. This means the policy never expires, so your loved ones will receive a death benefit no matter how old you are when you die. Unlike term life, whole life policies accrue cash value from investments over time. You can use this cash however you wish. You can withdraw the funds, take out a loan from your policy, or let them grow tax-deferred to supplement your death benefit. Whole life premiums tend to be much more expensive than term life premiums.
Variable Life Insurance
A derivative of whole life, variable life insurance plans allow the policyholder to decide how his/her premiums are invested. The policyholder can choose from a variety of mutual funds, stocks, and bonds. People looking for health and life insurance usually select variable life insurance for its flexibility-policyholders have the ability to adjust the death benefit and premiums of the policy as their needs change.
Universal Life Insurance
Universal life insurance is similar to variable life in that it also builds cash value and gives the policyholder the option to adjust premiums and the death benefit. Universal life insurance plans typically give the policyholder the option to choose between cash value accumulation, which will depend on the fluctuations in interest rates, and guaranteed protection that does not rely on cash value. As you shop for health and life insurance, remember that the risk with universal life is that you will have to pay much higher premiums if the cash value of your policy does not perform as anticipated.
