Understanding the different types of life insurance will help you choose the best policy that provides the coverage you need. For many people, it’s complex to decide on which option will serve them best. So having an overview of the four main types of life insurance can help make an informed decision.
When it comes to being a habitual spender, the best policy to cover you is endowment. Basically, it’s like a life insurance that helps you save money within a required period. If you survive the term, you will receive a lump sum from the policy maturity.
You can use the maturity money to cover your financial needs including your kid’s education, retirement, and buying a property. The policy will make a full sum payment to you in case you die while the policy is still in force. And this endowment plan is the best option if you want to get the best of both worlds – savings and life cover.
In terms of the cheapest and simplest insurance coverage, term insurance remains the top choice. It offers death benefit without cash value accrual. In addition, term insurance only stays effective within a specified period or term; say, 10, 20, or 30 years.
If you’re insured, you will pay an annual or monthly premium to your insurer in order to take advantage of death protection. However, once your term expires, the coverage and the premiums will also end. And when you die after your term has expired, death benefit won’t be paid.
But the good thing is, you can renew your term insurance when your term ends. Only that, premiums will become higher compared to the previous ones. For people who are older than 75, it will be impossible to get this type of insurance since premiums increase as people get older. So while still young and working, make sure to invest in term insurance for future needs.
Also known as straight life or ordinary life, this type of insurance is the oldest type when it comes to cash value life coverage. This policy provides death benefit that is effective throughout your lifetime rather than just for specific terms or period.
If you invest in whole life insurance while you’re still young, you will enjoy lower premiums. On the other hand, older policyholders will pay more expensive premiums due to the shorter period they have to settle their payments. Periodically, either annually or quarterly, this type of insurance will pay the insured through dividends.
You can get the dividend cash fully or partially anytime for any reason, just make sure the coverage is not yet expired. A whole life policy is different from term policy because of level premiums that don’t increase over a longer period. And there’s no need to worry because the dividends are guaranteed.
Some policies will let you pay a higher premium for a relatively shorter period in order to avoid additional payments before they are paid up. Then again, a final expense policy, which is also a whole life policy, may only provide small death benefit and small premium.
Variable Universal Life (VUL)
This type of insurance policy is a combination of universal life and variable life insurance. It offers flexible features that universal life insurance provide as well as the variable features of variable life insurance. VUL allows the insured to pay their premiums depending on the terms convenient to them.
Death benefits fluctuate based on the subaccounts’ performance. In addition, VULs are complex financial products since they have substantial charges on investment and policy management. They are typically more ideal for insureds and investors with higher income.
The key here is to choose the best policy plan that will help you handle your financial needs in the long run. Always check the features and understand the terms before investing your money in any type of life insurance.
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