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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.
Life Insurance comes in two specific categories, temporary and permanent.The temporary or short-term life Insurance Policy is taken specially when one has to face serious illness that impacts one's life. In such a situation it could drain one's financial resources paying hospital bills Short term life Insurance covers devastating events which take care of the individual and the family of the insured. The terms to be considered are the amount to be covered, the premium to be paid and length of the coverage.
Permanent Life Insurance policies come in the categories – Whole life coverage, Universal life coverage, Endowments and Accidental Death. Here the Life Insurance remains until the policy matures. Such policies cannot be cancelled. In this case there is less risk to the insurance company . However, the older the person the more expensive will it be to the insurance company and in such cases however the premium amount to be paid is more. If the one insured does want to continue, the policy is surrendered being eligible for receiving the surrender value. One can also take loans on these policies.
In the case of a Whole Life Coverage there is a guaranteed death benefit, the premiums are already fixed, and the value on maturity spelled out. The disadvantage however is that when compared to alternatives available where investing would fetch more income here due to amounts already fixed this final amount would not reach anywhere near other instruments. The benefit would be that one is covered for life.
Unlike the Whole Life Coverage, Universal Life Coverage is flexible. Here it is possible to review the death benefits, savings and premiums paid. One other benefit here is that the interest accrued can be used to pay the premium amounts.
Endowment Policies are those that are time bound. These could be taken for a fixed period and the maturity value is paid to the insured at the end of the maturity period whether living or dead. The premiums here are far higher than compared to other options available.
The Accidental Death Policy covers those who may die due to an accident and here the premium is much lower than any other Insurance Policy. One needs to study the terms and conditions as not all situations are covered under this policy. Also no Insurance Company will insure those who are involved in accident prone activities such as parachuting, involved in wars or flying.
This policy is further extended to cover those who get dismembered while in an accident and here the Insurance Company will have to be satisfied that the extent of damage done qualifies for payment.
Some riders are sometimes added to the Whole Life Policy as per the needs of the policy holder such as accidental death which doubles the amount of the face value if death occurs due to accident.
Then there is the premium waiver clause when the insured becomes disabled. In the case of joint life insurance there is an option to pay the proceeds either after the first insured dies or even after the second. There are policies where a single premium is paid at the time the policy is obtained. Modified policies are those that have variable premium amounts that are paid.
Group Life Insurance is normally opted by Organizations for their employees., In recent years Insurance coverage for seniors have been introduced here the maturity amount is much smaller.There are Prepaid Insurance policies to cover funeral expenses of seniors where the amount goes to those organizing the funeral and the balance to any other beneficiary as specified.