Understanding Your Life Insurance Options

One of the most important benefits that you should consider for yourself and your family is life insurance. Life insurance comes in many different forms, but the basic premise is that it will provide a sum of money to your designated beneficiary to help pay for end of life expenses so you don't leave them with worrisome debt or wondering how to pay for funeral costs.

Life insurance can provide you and your loved ones with peace of mind in knowing that they are covered should anything happen to you. Life insurance can even leave your family with an inheritance to provide for their needs.

Depending on the type of policy that you choose, your life insurance may help you to build up a cash value that you can use for your needs, whether that is saving for retirement, or to provide a low cost alternative to a traditional bank loan where you borrow against yourself.

There are many different types of life insurance and understanding the difference between them is necessary so you can select the policy that is right for you and best meets your needs.

Term Life Insurance

One type is called term life insurance. These policies provide you with coverage for only a specified period of time. At the end of that period, the coverage expires and you need to renew it to or convert to another type of insurance.

Term life insurance has monthly premiums and is a less expensive option than whole life insurance. It doesn't provide a cash benefit but is a more affordable option that can be a good choice for younger people and those that aren't looking for permanent coverage.

Whole Life Insurance

The next type of life insurance is whole life insurance. This type of coverage is permanent and provides you with a cash value in addition to the death benefit.

Whole life insurance will last for your entire lifetime and the cash value will be paid out to your beneficiary upon your death.

One of the benefits of a whole life insurance policy is that you can borrow against the cash value to take care of needs or large expenses. This will diminish the value of your life insurance but can be a good option for those that want to be in control of their finances as you're essentially borrowing from yourself and can control the amount that you need for any purpose.

Participating Life Insurance

A participating life insurance policy is a type of whole life that pays dividends to you from the life insurance company, usually annually. This type of insurance gets its name because policyholders receive a share of the surplus earnings in the form of those dividends.

These policies vary, in that some offer a guaranteed dividend amount that is determined at the time the policy is taken out. Dividends can be used towards paying the premium amount or can be taken and used for any purpose you choose.

Universal Life Insurance

Universal life insurance is similar to whole life in that it is permanent life insurance that generates a cash value. The cash value of a universal life insurance policy depends upon the interest rate.

Universal life insurance is a more flexible option that allows you to adjust the amount of the death benefit, and more freedom with premium payment dates and amounts. You can also choose to use any accrued cash value to pay the premiums.

Variable Life Insurance

Finally, there is variable life insurance. This type also helps you build up a cash value through permanent life insurance. It also offers opportunities for investment that act as a mutual fund. The cash value of this type of policy will fluctuate depending on the accounts you choose as investments.

It's important to carefully consider the different types of life insurance offered so you can make an informed decision about what is best for you. There are policies that fit nearly any need, so with a little research, you will find one that is fitting for your situation.