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Life Insurance Types
There are three basic life insurance types. These are (1) whole life, (2) term life, and (3) universal life insurance.
Whole life insurance is also known as permanent life insurance. These policies cover you for a lifetime (that is, as long as the premiums are paid). Not only do these policies make a payout to your beneficiary(ies) upon your death, they also have the capability to build up a cash value. You have the option to borrow from that cash value and still have the death benefit for your beneficiary(ies). The cash value can also be used to pay a few of the premiums during difficult times. The premiums for the Whole Life policy are usually higher than a comparable Term Life policy.
Term life insurance is considered temporary life insurance. It normally covers you for a set number of years (5, 10, 20, or maybe even 30) as long as the premiums are paid. Term life builds up no cash value. Term life is usually used to cover specific liabilities you have in your lifetime. These liabilities may be to secure the purchase of a new house or a new car. That way, if you die, your family will not have to worry about losing their home or transportation. Term Life is generally purchased by a younger group as the cost of premiums goes up with every year you wait. The younger you are, the cheaper the policy.
Universal life insurance is the most flexible of the three basic plans. Universal life not only provides the death benefit, it also builds in a protective cash value. The owner is allowed to invest a certain percentage in stocks, bonds or mortgages in order to increase the cash value in place of the dividends paid into the whole life plan. The premiums vary greatly according to how aggressive the policy owner is willing to be and the coverage they are setting up.
There are variations on these three basic plans, such as Variable Universal Life, Return of Premium Term Life, and Temporary Term Life. Parents frequently take out a 20 year term life plan on their children in order to cover them until they become old enough to take out their own plan.
In addition to the basic plans, there are also Travel Life Insurance, Accidental Death Plan, Limited-Pay Plan and Endowments. The younger you are when you take out the plan, the cheaper the premiums. Make sure your family is protected in case something happens to you. Don't leave your wife and child unprotected and homeless. Make sure they will be protected when you are not here to protect them yourself.