So, you’ve decided that you need life insurance… but what kind? Here are a few different types of insurance and how they may be useful to you:
Term Life Insurance
These kinds of policies only offer a death benefit for a specific period of time. If the insured dies after the term expires, no death benefit is payable. Term policies can be level, decreasing, or increasing, meaning that the death benefit will stay level or change as the coverage period goes on. Decreasing term policies are appropriate for home mortgages and bank loans that decrease in expense over time, while increasing term policies can keep death benefits current with inflation and cost of living expenses.
Whole Life Insurance
Unlike term insurance policies, whole life insurance policies are guaranteed to remain effective for the duration of the policyholder’s life (provided that the premiums are paid). Whole life insurance premiums are more expensive, but they never increase. Whole life policies typically endow at age 100 or 120. If the insured is still living at this point, the cash value in the policy will equal the face amount, and will be paid to the policyowner.
Universal Life Insurance
This type of policy is designed for people who want flexible premiums and coverage over their lifetime. Unlike whole life insurance, premiums are not fixed. Paid premiums accumulate as interest in the policy’s cash value. Every month, a cost of insurance and an administrative fee are taken by the insurer, but the policy is effective as long as there is enough cash value to cover these expenses. So, a policyowner can skip premiums when money is tight, as long as there is enough accumulated cash value.
Indexed Life Insurance
This is a type of universal policy in which policyowners can tie accumulation values to a stock market. These policies give the same security of a fixed universal life insurance policy, with the added growth potential of the market. It is important to note that since stocks may lose value, there is a protection on indexed universal policies that prevents cash value from dipping below zero.
Survivorship Life Insurance
This kind of policy insures two individuals, and pays the death benefit when the last insured dies. These policies may be suited for married couples because they cost less than purchasing two individual policies, and can provide money to pay estate settlement fees and other expenses upon the death of the second spouse.
Though there are many policies to choose from, an advisor can help you select the one that will be of most benefit to you and your financial situation.
