When it comes to a life insurance policy, there are so many options at your disposal that can help protect your family in case of any sudden unfortunate eventualities. Basically, life insurance policies fall into two main categories; term and permanent life insurance.
With a term life insurance policy, the coverage is usually for a limited period of time say 10 years. If you die within that timeframe, the money is paid to your beneficiaries. When the term lapses, you either get a new policy or go without the policy. On the other hand, a permanent life insurance policy usually provides coverage for life, and apart from offering coverage; they also offer a cash value component that has so many objectives. For instance, the cash value component can help you build your retirement nest while also providing you with protection for life and other financial benefits.
To help you understand your life insurance policy options and determine what works best for you, here are some of the things that you need to know;
- The basic building blocks of life insurance policies
- The different types of life insurance.
- What insurance is best for you?
Building Blocks of Life Insurance Policies
At the very core of life insurance is a promise. A promise to provide financial protection to the beneficiaries of the policyholder in case of your death. The way that the policy works is usually defined in some few key features;
- The death benefit payout-which is the amount that the insurance company is obligated to pay your beneficiaries when the insured person dies. Usually, the benefit is tax deferred.
- The beneficiaries- these are the people or entities that usually get the death benefit upon your demise. The death benefit can all go to one person for example a surviving spouse or can be divided by a percentage among the beneficiaries. It is important to note that beneficiaries do not have to be people; you may choose to have the death benefit donated to a charitable cause.
- Term period- this is the period that the insurer agrees to pay the death benefit. In a term life insurance policy, the term may be defined in terms of the number of years such as 10, 20 or even 30 years. A permanent life insurance policy on the other hand will last for the life of the insured or basically for as long as the premiums are paid.
- Cash value of the life insurance policy- this is the investment component that builds up over time and usually can be cashed out or even used for other purposes such as for retirement or borrowed against.
Types of Insurance Policies
In our previous blog post, we looked at the differences between term life and whole life insurance policies, and other than these two policies, there are other life insurance policies that most people do not know about. In this blog, we will look at some of these policies in detail in order to give enough choices when shopping for an insurance policy.
Universal life insurance policy
This, just like the whole life insurance policy is a type of life policy that offers the policyholder the cash value and lifetime coverage benefits of whole life. The difference between a universal life insurance policy and a whole life insurance policy is the flexibility in premiums. Universal life insurance policies allow individuals to lower or raise their premium contributions as they see fit within the limits of the policy. When a person chooses to lower the premiums, this raises the chances of paying higher amounts later just to keep the coverage.
The main advantage of this policy over the whole life insurance policy is that you can adjust your contributions according to your life circumstances while providing the same kind of benefits as the whole life.
Final expense insurance
This is also another form of life insurance that is intended only to cover the end of life expenses, for instance, expenses such as burial and funeral costs. As long as you keep paying your premiums the policy is effective but of importance to note however is that this type of policy doesn’t offer you cash value or an investment component. It is a policy that older people take because it shields their children from incurring out-of-pocket expenses to cover for their burials. While the premiums paid to a final expense life insurance policy are modest, they are limited in that they are not meant to offer beneficiaries any form of financial protection.
Variable Life Insurance
This is a type of permanent life insurance policy that has some investment risks as it is comprised of various instruments and investment funds. It may be more expensive compared to other forms of life insurance policies due to the administrative fees and the management of the plan’s investments. Premium paid into variable life insurance will go to a series of the mutual fund-like sub-accounts and with such a channel; a person is assured of some decent value growth over time.
The cash value of variable life insurance can be used as an investment option. While this option makes the variable life insurance plans a better investment option than the whole life policies you can only invest in the sub-accounts. Additionally, they are much riskier compared to the whole life plan.
What is the best life insurance policy for you?
This depends entirely on your financial goals. If you want to be insured for a certain period of time, term life insurance plans are the best. But no matter what kind of an insurance policy you go for, it is essential to make sure that you get your plan from an experienced insurer that also has the financial muscles. It is also important that you talk to a financial expert who can help you decide exactly what type of life insurance is right for you. Here at EquityMovement247.com, we have financial experts that can help you make the right choice. Talk to Julius Cartwright at 216-990-1501 to learn more.
