There are several types of term and permanent life insurance policies to choose from. What’s best for you depends on a variety of factors like length of coverage, your budget, and if you want your policy to build cash over time. Let’s explore the different types.
Term insurance and whole life insurance are the two main categories of life insurance. Whole life insurance lasts throughout your life and has a cash-value component that can be borrowed against or withdrawn anytime.
Term Insurance
Term insurance policies essentially offer coverage for a set number of years and work for most people. If one survives the specified time frame, the coverage expires with no payout. Coverage is sold for a duration between five and 30 years. The pay can vary as per the policy but can easily go into the millions. It’s also one of the cheapest life insurance covers available.
Whole Life Insurance
As long as the premiums continue to be paid, whole life insurance usually lasts till the death of the covered individual. The premium amounts tend to stay the same, the insured gets a guaranteed rate of return on the cash value of the plan, and the death benefit amount remains constant. While it offers lifetime coverage, it also tends to be more expensive than term life insurance.
Universal Life Insurance
Here, the death benefit is guaranteed, and the premiums don’t change. There’s no cash value in the policy, and the insurer insists on on-time premium payments. It works out to be cheaper than whole life and other forms of permanent life insurance. But if you miss a payment, you could forfeit the policy and may get nothing.
Indexed Universal Life Insurance
This life insurance links the policy’s cash value component to a stock market index. Check the policy for a formula that determines how much the insured individual will gain. If the stock market performs well, then there are considerable gains to be made over time. But since there are investment caps, the cash value will not get the full advantage of stock market gains. The investments also require monitoring, so there is more work involved. Still, this is a good choice for some people.