What are the Different Types of Life Insurance?
No matter when the policyholder dies – unexpectedly at 35 or understandably at 95 – their beneficiaries receive the death benefit. Pros: The benefits of whole life insurance are lifetime coverage, fixed monthly premiums and extra cash stashed away in a savings account. And before you die, you can withdraw money tax-free from the savings account up to the cash value you’ve contributed. Part of your fixed monthly premium with whole life insurance goes toward the death benefit and part goes into this savings account. Cons: The main downside of whole life insurance is its cost. The cash value component of whole life insurance policies is basically a savings account that grows with interest.
The difference is that universal life offers more flexibility in how to pay the monthly premiums. If money is tight one year, universal life insurance policyholders can dip into their savings account to help pay for the premiums. The major selling point of universal life insurance (bangkok.thaibounty.com) is that you can potentially use the accumulated cash value of the account to lower the cost of monthly premiums or pay for them entirely. Dolan says that this type of policy is most appealing to people whose income varies from year to year. Pros: The benefits of universal life are permanent coverage and flexible out-of-pocket costs for paying the monthly premiums.
Final Expense Insurance: You’ve probably seen the touching ads for this one on TV. Before you buy any type of life insurance, sit down with a life insurance agent who can suggest policies that match your specific financial situation and goals. This insurance takes care of any costs associated with one’s funeral and burial, so your loved ones aren’t stuck with the expenses. Or you might be able to get a term life policy with a lot more benefits for the same monthly premium. HowStuffWorks may earn a small commission from affiliate links in this article. However, many experts say it’s a bad deal. And beware of targeted solicitations in the mail or online that seem too good to be true. It may pay out anywhere between $5,000 and $25,000 for usually a small amount of money in premiums. You could probably get the same benefit without buying a policy, simply by putting away $50 a month toward funeral expenses in a savings account.
Term life insurance is also called “pure” life insurance, because your monthly premiums only pay for a death benefit, not any kind of investment component. Term life insurance is so popular because it fulfills the most basic need for life insurance, which is to replace lost income following the death of a spouse, parent or other financial provider. People often buy term life insurance when they get married or have a child, because they want a policy that will cover them through retirement age, or until their children are financially independent.
Whole life insurance falls under the larger umbrella of “permanent” life insurance policies. As we’ll see, though, that extra coverage comes at a cost. Whole life insurance is the simplest type of permanent life insurance. Unlike term life insurance, which only covers the policyholder for a 30- or 40-year term, permanent life insurance policies are, well, permanent – the policyholder is covered for their entire life. The death benefit component of a whole life policy works exactly the same as term life insurance, except there’s no expiration date.
Premiums can spike unexpectedly and the value of the policy actually goes down as time passes, since the balance on the mortgage reduces year after year. Credit Life Insurance: Like mortgage life insurance, credit life insurance is designed to pay off the balance of a specific loan – home equity loan, car loan, etc. – if the policyholder dies. The benefit of such a policy is the peace of mind of knowing that the debt won’t be passed on to surviving family members. The drawbacks are that the value of the policy decreases over time even as premiums stay the same, and that the real beneficiary is the lender, not the survivors.
