What You Need To Know About Life Insurance
If you haven’t yet considered life insurance, Life Insurance Awareness Month is a great time to do so. Make your September count by taking some time to review your options and figure out which would be best for you. Speaking with an experienced insurance professional can help you get more information and answers to your questions.
Insurers offer several types of life policies. The following short guide provides you with a basic outline of each type’s main features, along with some notable pros and cons.
Term Life
A term life policy provides coverage for a set term; if the policy holder passes away during this term, the beneficiaries will receive death benefits. For the most common variation of this policy, you would pay the same premium every year.
Because there is a chance the insurer will not have to pay out benefits, the premiums tend to be more affordable than for other types of policies. This kind of insurance can make sense for individuals who anticipate a high level of expense during a certain period of time and want to be sure it can be covered in the event of death. For instance, in a family with young children and a mortgage, the breadwinner may want to obtain a term life policy for 20 years; after this time, the children will be grown and will not need financial support.
On the other hand, some people may have dependents who will need long-term support. They may also anticipate large expenses, such as substantial estate taxes, that will continue or arise beyond the term’s limits.
Term life policies also do not offer the option of borrowing cash or getting a refund for cancellation. A return of premium term policy can refund the premiums to someone who does not pass during the policy’s term; these premiums, however, will be higher than those for a typical term life policy.
Whole Life
This is the type of policy most people think of first when the topic of life insurance comes up. While it can deliver several important benefits, it is also not always the best option for every situation.
When you purchase a whole-life policy, the insurer will pay out its benefits to your beneficiaries no matter when you pass away. You will pay the same premiums throughout and your policy will accrue guaranteed cash value. This type of policy can offer the highest level of security but also tends to cost significantly more than other types of life insurance.
Universal Life
A universal policy offers investment options and flexibility in addition to providing death benefits. Part of your premium goes to covering the policy itself in order to guarantee the death benefit. The other portion goes into investment, which grows over time. Indexed universal life insurance provides added stability by protecting against market fluctuations.
With consistent premium payments, eventually the investment portion would become large enough to cover the premium payments as well, so you could end up only paying into the investment fund. This also gives you the option to extend your insurance to whole life; as the investment funds grow enough to cover the cost of the premiums, you stop incurring out-of-pocket expenses and can still count on the death benefits.
The major advantage of universal insurance is that it also serves as a vehicle for accumulating savings. Most people would benefit most by waiting at least 10 years before beginning to cash out or to move the funds in the investment portion. To reap the full extent of potential advantages, it is typically recommended to purchase this type of policy fairly early in life; at an older age, whole life insurance can make more sense.
When considering a universal policy, you should be aware that the growth of your investment can depend on various factors, among which market performance is the most prominent. It is a good idea to discuss potential risks with your financial advisor before making a decision.
Variable Universal Life
This policy works in a similar way to universal life, with part of your premium going into investment. Its distinguishing feature is that you can put a portion or the entirety of your cash value into a variable investment account.
In comparison to universal life, you have more control over where you invest these funds, so you can potentially see a higher rate of growth than you would with universal life investments, which tend to stay on the safe side.
The other side of the coin is that your risks also increase and you stand to lose cash value in your policy if your investment goes badly. Many insurers will also charge you a high surrender fee in the early years after you purchase this type of policy.
You can benefit from a variable universal life policy if you put in the work to get solid investment advice from a knowledgeable source. You should also be prepared to keep monitoring your investments throughout your policy’s duration and to shift funds as necessary. While this policy can offer a higher financial yield, it is also riskier and requires more work on your part.
Conclusion
Life insurance is an important tool in providing financial security for your family in the event of your death. Some types of policies can also help you save and even grow your investment.
Premiums and other terms can depend on a wide range of factors, including your choice of insurer, the type of policy you purchase, your desired coverage amount, your age, health, occupation and more. A knowledgeable insurance representative can help you learn more about your options and what you can expect.
Working with a reputable insurance agent is the best way to get the individual attention and full range of information you need to make the right decision for yourself and your family. At Smallwood Insurance Agency, we aim to help you select the best product to protect your financial future. We offer a comprehensive range of life insurance products and other services.
