Types of Life Insurance

Do you worry about how your loved ones would cover the costs of your death? Are you confused by all the different types of life insurance? Well, let's break them all down into their basic components.

The most basic and simplest form of coverage is called term life insurance. This is where you are simply paying to cover the event of your death and nothing more. You are only covered for a set period of time. During that time, your premium will not move. You will also not be gaining any benefits, though. This is about the cheapest life insurance policy that is available.

A whole life insurance policy is very similar to the term insurance. However, it is definitely the next step up. Here, you are covered for your entire life rather than a predetermined period. The premium here is higher, but the coverage is permanent. You will also gain benefits in cash accruements through investments made by the insurance company. One negative aspect is that payment on premiums is not very flexible at all.

The next type of coverage is known as universal life insurance. Again, it is another step up and quite similar to whole life in its basic aspects. There are some marked differences that make it seem more complicated. For example, the premiums are more flexible and you can choose how much more to pay above and beyond the minimum amount. A portion of this will be invested and built up into cash by the company. It can be used to pay monthly fees if needed. When you die, the cash will either be added to face value of account or given as a benefit to the beneficiary.

You can also get a policy in the case of accidental death. You are covered except for suicide or natural causes. The premium is not expensive because the coverage is so limited. This high risk life insurance can be useful to those regularly involved in dangerous activities such as motor sports or other high risk lifestyles.

Finding the right kind of policies can be confusing. There are so many different types of life insurance to choose from. The following breaks down the popular term and permanent life insurance types.

The idea of having to choose between the types of life insurance can be overwhelming. The amount of information that you face as you start to get in the process might turn you away, but when you know what you're doing, the process can go surprisingly easily. To start, you probably want to look into the most popular life insurance option known as term life insurance.

Many people are mistaken in concepts about term life insurance. What it does is provide insurance for a certain period of time, sometimes five or ten, but usually twenty to thirty years. If you do die during this time, your beneficiaries will get a lump sum of money completely free from tax.

Obviously, there will be no monetary return if you don't die during the chosen time period, but it's easy enough to set the terms again. Of course, the most important thing is knowing that your loved ones will be taken care of in a time of need. But this insurance is also much cheaper than the other options available to you.

The drawback to tem insurance, as the name implies is that it's temporary insurance. Term insurance coverage is only good for the period of time stated in the policy. Once that time period expires the term life insurance policy has no value. This is what makes these policies so affordable.

There are all sorts of reasons to choose term life insurance, especially if you have kids or a business. If you've just bought a house and have a mortgage you'll want to make sure your family will continue to be able to cover these costs. If you pass away you'll certainly want to make sure your income can be replaced for a significant period of time. If you're the sole owner of a business, it's also essential.

There's a huge range in the terms you can get insurance for, from as little as one year to as many as thirty. Look around for the best prices no matter what you decide on. See if the company you work with can provide level term insurance, where the premiums you pay will remain unchanged throughout the term.

There are other premium options as well. In some cases, they'll increase a little bit each year, but in other's they'll even decrease. Of course, don't throw away money on life insurance you don't need. As important as insurance is for a family or a business, if you don't have either, it's just a waste of money.

Permanent life insurance is a type of life insurance that does not expire, and most commonly comes in the form of whole life insurance. Whole life insurance as the name implies is a life insurance policy that covers you for your whole life, as long as timely payments are made throughout the life of the policy. This permanent form of life insurance is a combination of term life insurance along with a savings element. Through this investment element, which can be invested in stocks, bonds, and other investments, the policy accumulates cash value. This accumulated value can be borrowed against while the policy owner is still living.

There are three typical types of whole life insurance. They are traditional whole life, variable, and universal life insurance. The traditional whole life typically provides a minimum guaranteed rate of return. The variable rate will provide a return tied to the markets, which can increase or decrease significantly. While universal life insurance is a more flexible version of whole life insurance that allows interest to cover premiums.

Permanent life insurance does have some advantages when compared to its term life insurance counterparts. First and foremost, it is permanent; meaning as long as premiums are paid the policy can't expire. This comes with a number of advantages. Most notably if your health changes and you become uninsurable. Also, whole life insurance is commonly utilized for estate planning purposes. Since it can't expire and benefits are free from tax it's the estate planning vehicle of choice.

This type of life insurance does have its drawbacks, however. It's often misrepresented, and purchased for the wrong reasons. Whole life insurance policies don't make the best investment vehicles, although they are often pitched that way. Due to their high rate of expense they commonly under perform retirement vehicles like 401k's. As a pure life insurance play to protect a young family they are very costly. Term life insurance is the best type of life insurance when it comes to affordability. The amount of insurance protection term insurance can provide for a small outlay is just what young families are in need of.

You may find that when looking into the different types of life insurance that there's a lot to think about. This may be true, but it's important to understand that proper life insurance planning comes down to suitability. What are you in need of? Are you a young family looking for affordable coverage? If so, term life insurance would be the obvious choice. Alternatively, whole life may be suitable for those in need of comprehensive estate planning. Like most things in life there is no one size fits all solution.