Life Insurance: Three Main Types of Insurance Necessary
Life insurance is a solid financial plan that helps cover expenses if you die. Know what type you need, and be sure to purchase a policy that meets your needs.
Life is unpredictable. One day you may be healthy, and the next day you could be diagnosed with a serious illness. Because no one can sense what the future holds, it's critical to obtain life insurance.
Life insurance companies offer different types of coverage, and it can be confusing to understand which one is right for you. There are three primary types of life insurance: term life insurance, whole life insurance, and universal life insurance. It exists to pay out a death benefit to your beneficiaries in the event of your passing. Each category serves a different purpose and has its own set of pros and cons.
Let's take a look at the main types of life insurance and see which one is right for you.
Insurance Needs of Various Types
Whole Life Insurance
A whole life insurance policy is one form of permanent life insurance. That means it will cover you for your entire life, as long as you continue to pay the premiums. It generates cash value over time, which you can borrow against or cash out if you need to.
Each month, a part of your premium goes into the cash value account. The money value grows tax-free and is compounded. That means you won't have to pay taxes on it until you withdraw the money.
Whole life insurance has several benefits, including:
- It builds cash value over time
- The death benefit is guaranteed
- It's a permanent policy, so you're covered for life
You need to buy whole life insurance if you need the cash value to cover things like funeral costs, debts, final expenses, estate taxes, and Unpaid mortgage. It's also a good idea to have whole life insurance if you want to leave an inheritance for your beneficiaries or in retirement. A long-term dependent such as a disabled child can also be a good candidate for whole life insurance.
Term Life Insurance
Term life insurance is very simple: it's insurance that covers you for a set period of time, usually 10, 20, or 30 years. Your recipient will get a death benefit if you pass away during that time period. If you survive the term, the policy ends and you (and your beneficiaries) receive nothing.
Your level and fixed premium have ended at the end of the term, as has your coverage. However, the other types of life insurance (whole life and universal) do not have an expiration date.
Term life insurance is a preferable option if you need coverage for a specific time. For example, you may want to get term life insurance to cover the years your children are growing up and going to college. Once they're out of the house and you're no longer responsible for their care, you can cancel the policy.
Term life insurance in Beaumont is also a good choice if you're on a budget. However, it is a modest type of life insurance since it doesn't build cash value.
The con of term life insurance is that it doesn't last forever. So if you are searching for a permanent solution, you'll need to choose whole life insurance or universal life insurance.
Universal Life Insurance
Universal life insurance built on a term insurance chassis is what you have heard of as "permanent life insurance." Universal life insurance is a variety of permanent life insurance that offers flexibility and cash value accumulation.
Well, it sounds good, but to be honest, it is not as flexible as it used to be.
With it, you can choose how much coverage you need and how much you want to pay in monthly premiums. It is a term insurance policy with an investment account attached. If you die while the policy is in force, your beneficiaries will receive a death benefit, just like if you died from any other cause.
In universal life policy, it is known as the cost of insurance. The COI is the amount of money that the insurance company will charge you to keep your policy in force. At its core, you should pay enough premium to cover the cost of insurance and nothing more. The goal is to have the actual cash value of the policy increase each year so that it can eventually cover the insurance cost.
This policy type has many subtypes that can be tailored to your specific needs. Therefore, it is essential to understand how each type of policy works before you purchase a policy. Insurance providers will help you know what is best for you.
Let's Wrap It Up
Now you know the three main types of life insurance. You also understand how each type of policy works and what it covers. Whole life insurance is great for those who need the death benefit and cash value. Term life insurance is excellent for those needing coverage for a specific period. Universal life insurance is an absolute option for those who want a permanent solution with cash value accumulation.
All the policies work well and have their pros and cons. When you're ready to purchase a policy, be sure to work with an experienced life insurance agent who can help you find the right policy for your needs.