If you’ve ever shopped for life insurance, then you know how confusing it can be to choose among the different types of coverage available. If you have a family or other loved ones who depend on you then it’s worth the trouble to seek out the best policy for your needs.
Here is a brief description of the types of life insurance coverage. It only scratches the surface so if you’re in the market for insurance, be sure to do more research and contact an insurance agent.
Term: You’ve probably heard the phrase, “Buy Term and invest the difference.” What they refer to is the fact that term insurance is the least expense type of life insurance coverage leaving your other money available to invest. It is pure coverage for a specific period (term) of time. Let’s say you buy a term policy for $50,000 of coverage. If you die next month, your beneficiary (the person you named to collect the insurance if you die) will receive $50,000 in proceeds. The term for such policies can be anywhere from one year to thirty years or even more. At the end of your term, you can renew if you want to regardless of your health status but your premium will be recalculated based on your age. As you get older your premiums will increase in any case. At some point you may choose to switch your coverage from term to a permanent coverage.
Whole Life: One of the permanent insurance types whole life accumulates a cash value in addition to its death coverage. Unlike term insurance, whole life provides coverage for your entire life. Your premiums are higher than those for term life because part of each payment goes to your cash value. Your premiums will not change as you grow older.
Universal: A type of permanent insurance with both a death benefit and a cash value. You have choices regarding the amounts and timing of premium payments. Each choice has a direct impact on your coverage and cash value accumulation. If you decide to increase your coverage you will have to undergo the insurability process and perhaps a medical exam.
Variable: This form of permanent insurance allows you to choose how the cash account will be invested. Variable life policies require a fixed annual premium for the life of the policy. They may provide for a minimum guaranteed death benefit.
Variable universal: Combine the options of universal life with the flexibility of variable life and you get variable universal life. You choose how much and how often your premium payments will be (within guidelines). Payments in excess of costs (administrative and insurance) are invested in accounts of your choice.
For more information:
Understanding life insurance policies. Physician’s News Digest
www.physiciansnews.com/finance/597.html
Types of Life Insurance Policies
http://www.360financialliteracy.org/Life+Stages/Parenthood/Articles/Life+Insurance/Types+of+life+insurance+policies.htm
Financial Literacy Home Page
http://www.examiner.com/x-6044-Financial-Literacy-Examiner
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