There are quite a few options available to life insurance policy holders, and each type of life insurance has benefits for the insured. Determining which life insurance plan best fits a specific family’s needs requires an understanding of each of the options available to consumers. The different forms of life insurance are whole life, term life, universal life and variable universal life.
Whole life insurance protects an insured person for their entire life. The premiums are higher for whole life than for term life but whole life generates a cash value. There is a difference between the monthly payment and the cost of the insurance that difference is put into an account that accumulates a cash value. The cash value can be borrowed against and it is returned if the policy is canceled, usually there are fees for either of those situations. Premiums can also be paid with the cash value. At the time of death, the death benefit is paid out, not the death benefit and the cash value.
Term life insurance is the least expensive life insurance option and possibly the simplest to comprehend. Term life insurance allows policy holders to purchase life insurance for a predetermined amount of time, from one year to 30 years and if the insured passes away during that time the death benefit is paid to the beneficiary. Once the plan reaches the end of the term the plan is done. Provisions may be included so that when the term runs the insured does not have to prove insurability to stay insured, or that so it policy can be rolled into a permanent life insurance plan.
Universal life insurance is much like whole life, but the policy holder can change the premium and the death benefit. One reason a policy owner may want to change the death benefit would be to have a higher death benefit when paying on a mortgage or while rearing small children. In addition, if an insured decides to pay more towards the premium the cash value increases. An insured could also allow the premiums to pull from the cash value once it is established. The rate the cash value builds in a universal life is usually between 3 and 4 percent.
Variable Universal Life
Variable universal life insurance is much like whole life, in that it is a permanent policy. And it is similar to universal life because the insured has choices and flexibility. The major difference is that variable universal life insurance allows the policy holder to invest the cash value of their plan into stocks, bonds and mutual funds. The cash value in a variable universal life insurance policy can theoretically grow much faster than a whole life insurance plan or a universal life insurance plan. On the flip side, a variable universal life insurance plan can potentially take a loss.
There are several forms of life insurance to choose from, and policy holders have a multitude of reasons why they may choose one over the other. For those who can afford whole life and want the protection to last a life time, whole life would be a great choice. For people who are on a budget, term life would be a great option. For people who like the whole life term but want more flexibility with the plan, universal life might fit their needs best. And for those who want whole life with flexibility and who can take the risk of investing, variable universal life insurance might be their choice.