What’s the right life insurance for you? The answer depends on several factors, such as how much you want to pay, whether you want to use the policy as an investment, and how long it needs to last. Knowing more about different kinds of life insurance will help you make the right choice.
What if You Want to Switch Providers?
Getting a permanent policy is a long-term commitment. If you don’t need insurance anymore or can no longer pay the premiums, one option is to sell it. It’s important to do your research about selling the policy for cash. There may be pros and cons of selling certain types of life insurance and you want to make the right decision.
Whole and Term Coverage
Term insurance is sold in periods of one to 30 years and the coverage amounts can vary. This is often the least expensive way of getting coverage, and you can get quotes online. But if you outlive the policy, your beneficiaries won’t get a payment. An annual renewable term policy lasts for a year and at the end of that time, it will renew. This type is often useful if you need coverage for a short time or have short-term debts. Whole life insurance often lasts until you die and it can cover the costs of a funeral as long as you make the payments. It is good for those who want to get coverage and then forget it. Usually, the premiums stay the same, so there is a guaranteed return rate on the cash value of the policy. The death benefit amount also does not change. One of the benefits is that it builds cash value and covers you for your entire life. But it often costs more than other permanent coverage.
Types of Universal Life Insurance
With guaranteed universal insurance, the premiums will not change, and the death benefit is guaranteed. There is little to no cash value in the policy, and you have to make payments on time. You can pick the age that you want the death benefit guaranteed to, like 90 or 95. One of the advantages is that because it has a minimal cash value, it is not as expensive as whole life or other types of universal insurance. But if you miss a payment, you may forfeit the coverage. With a variable or variable universal policy, the cash value is tied to investments like mutual funds and bonds. The premiums of variable policies are often fixed and there is a guaranteed death benefit, even if the market goes down. On the other hand, variable universal premiums are adjustable, but there is no guaranteed death benefit.
With either type of variable policy, there’s a chance for gains if the investment does well, and you can borrow against the cash value or take partial withdrawals. But you also have to stay on top of managing the coverage since the market determines how much the cash value can change. Administrative charges and other fees are deducted before they go toward the cash value.