Everyone will probably find the need to buy life insurance at some time in their life. Life insurance may be used to make sure your family is provided for if you die. It can also be used to guarantee payment on debts.
There are five basic types of life insurance. There is term life and four kinds of permanent insurance. They vary from very simple to understand to fairly complex.
1. Term life is insurance that exists for a certain period of time, say 20 years. The premium remains the same during that term. The death benefit remains the same during the term. At the end of the term the policy either stops the insurance, or the premium rises. For example; $100,000 of life insurance at a monthly premium of $50. Some term policies include an option to convert to permanent life.
2. Whole life is like term in that it has a specified death benefit and the premiums remain the same. The premiums continue for the insured’s whole life. Whole life also accumulates cash value. The cash value can be used by the policy owner.
3. Variable life provides a death benefit that varies according to the return of the cash value. The premiums are invested and the death benefit varies according to how much the value of the policy increases or decreases. The cash value can be borrowed against.
4. Universal life allows for premium flexibility and death benefit flexibility. The premium and face amount can be adjusted over the life of the policy. The cash value can be withdrawn or borrowed against.
5. Universal variable life allows for investment of the cash value in traditional securities; stocks, money markets, index funds and bonds. The earnings within the policy are tax deferred. Premiums are flexible. Cash value may be withdrawn or borrowed.
It can be difficult to determine just which type of life insurance is best. Working with a knowledgeable agent is always helpful.
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