Life Insurance is a critical component of any good financial plan. Having the ability to protect your loved one after you're gone means planning ahead. If you are in current need of a life insurance plan or if you have not reviewed your coverage recently, now is the time. Below are descriptions of the most common types of coverage.
Term Life Insurance: Term insurance is typically used in situations where you need coverage for a specific amount of time, not necessarily for the rest of your life. Term policies are normally written in 10, 20, or 30 year increments. One of the main advantages to term, because it isn’t a policy that lasts forever, is that you can get a greater amount of coverage for significantly less cost than any other type of life insurance. Your payments are usually fixed for the length of the policy. If you don’t pay your premiums the policy will terminate. You are not bound to your payments. If you decide you no longer want or need the insurance, you can simply cancel the policy.
Whole Life Insurance: Whole life insurance is a type of policy that will provide protection for the remainder of your life assuming that you continue to pay the premiums. The death benefit is guaranteed and the premiums remain fixed. Cash value can accumulate within the policy and is available for a loan against the policy (that has to be paid back to the policy with interest) or is available to be withdrawn if you surrender the policy.
Universal Life Insurance: Universal life is unique in the fact that you control when and how much premiums you wish to pay. You also have the ability to increase or decrease the death benefit as you see fit. A portion of your premiums will pay for the insurance while the remainder will accumulate in the cash value account. The cash value account will receive a guaranteed minimum interest rate. Assuming there is enough money in the cash value account to cover your premium, you can skip payments if you choose. If you surrender the policy, you will receive the cash value plus any interest that was paid. Depending on the policy, cash value can be withdrawn without paying it back to the policy.
Variable Life Insurance: Variable life is designed for the owner to be able to have the cash value of the account invested in certain equity positions in the market instead of having it just receive a fixed interest rate. This can provide for a greater rate of return within the cash value account. The cash value and death benefit can fluctuate depending on the current market conditions. The premium payments can be fixed or flexible depending on the policy. Variable life does allow loans against the cash value that must be paid back with interest to the policy.
