What Are the Differences in Life Insurance Policies?
There isn’t just one standard type of life insurance available. Some plans simply pay your beneficiaries a set amount of money when you die, but others can be borrowed against in your lifetime. Before you purchase life insurance you should understand the basic policies available. They include term, whole life, universal life, and variable life.
What is Term Life Insurance?
Term life insurance allows you to purchase the most amount of coverage for the smallest amount of premium. When you purchase term life insurance, you are buying a policy that covers a specific “term” of your life. During the duration of the term, you pay your premiums and if you should die during the term, your beneficiary collects the full amount you were insured for. Once the term is up, the policy ends and you will not receive any money on it when you die. Term insurance is often purchased for the duration of time a couple might have children living at home or a large expense like a mortgage to pay off.
What is Whole Life Insurance?
Whole life insurance covers you for the entirety of your life, as long as you keep paying your premiums. Your premiums are more expensive for whole life insurance than they are for term life insurance, because the insurance company will have to pay when you die, no matter how old you are.
What is Universal Life Insurance?
Universal life insurance covers you for your whole life as long as your premiums are current. The difference between whole life and universal is that the insurance company invests part of your premium giving your beneficiaries the face value of the investments along with the value of the policy.
What is Variable Life Insurance?
Variable life insurance is just like universal life insurance with a few added benefits. When you purchase variable life insurance, your premiums are invested, but usually there are more options for investing your money with this type of insurance. Some investment options include stocks, bonds, and mutual funds.
Which Life Insurance Option Should You Choose?
Most insurance agents recommend term life insurance to their first time clients. For the average client, term life insurance gives them the option of an affordable plan that will take care of their family if something happens to them while their children are young. If you have disabled children that you will be responsible for beyond their childhood, whole life insurance would be a better option.
The younger you are when you purchase life insurance, the less you pay in premiums each month. Purchasing whole life insurance when you are young, will make sure that you have affordable premiums when you are older and have more need of life insurance.
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