What Kind Of Life Insurance Should Be Purchased

Life insurance is an important aspect for almost everyone, except those who do not plan on leaving anything and have their burial expenses already taken care of, but there are different kinds of life insurance policies available. How do you know what kind of life insurance to purchase?

There are term life policies, permanent life policies, cash value policies, whole life insurance, universal life insurance, variable life insurance, and hybrids which include more than one insurance type in one policy. Knowing what type of insurance to get does require a little research if you do not understand each type and what it involves.

Without knowledge of the subject you can not make informed decisions which are the best possible for your specific circumstances. Life insurance includes a number of different types and terms which may not be familiar, and you must do the work to understand what your life insurance options are and which type is the best fit with your goals and financial security.

Term Life Insurance

One option is term life insurance, and this may also be considered short term coverage because the policy only covers a specific period, usually a year. These policies require renewal after every term period ends, and there is no cash value or accrued equity involved. If you die while the term life policy is in effect then the face value of the policy is paid.

The younger you are the cheaper this life insurance type is, and there is an option to make the policy renewable without the need to qualify again but you will pay a higher premium for this option. Term life may also include a conversion clause, which will allow you to change the life insurance type of the policy to permanent coverage later on.

A third choice or option when it comes to term life policies is to determine whether you want level term or decreasing term coverage or premiums. Level term coverage means that the life insurance policy amount stays the same through the entire time, and decreasing term coverage refers to the fact that the amount of the policy coverage gets lower as the term of the policy continues.

Level premium term life insurance is coverage which does not cause the premiums to change during the entire term of the life insurance policy.

Permanent Life Insurance

Permanent life insurance coverage, also called cash value policies, offer both a cash payout for a death benefit and a savings plan combined. With this type of life insurance you will pay fees to set up the policy and account, and there are a number of tax benefits and advantages associated with this type of life insurance.

Premiums for this policy type are locked in and do not change, and these are determined by your age when this type of policy is started. The amount of the cash value is deposited into a savings account, and over a period of years this amount can be significant. If you die during the early years with these life insurance policies, the insurance will pay the death benefit.

Over time more of the death benefit will come from the savings component of these policies instead of being paid by the insurance company.

Whole Life Insurance

Whole life is another life insurance type, and this option is life insurance at the most basic. The premiums you pay go towards the insurance payment and a savings account both, and the insurance company determines how the savings portion is invested.

Whole life policies are also subject to management fees, which can be quite large over time for some companies.

Single premium life insurance

Single premium life insurance is very simple. You make a single payment in a lump sum, and you do not make any more payments for the entire term of the policy. The premiums for single life policies will depend on your age and other relevant factors, and this life insurance type can be used as collateral for a loan.

Universal life insurance

Universal life insurance has more flexibility than whole life, because these policies allow you to determine how much of the payment goes to the insurance premiums and how much of the payment goes into the savings account or investing component. The return or interest can be used to pay the insurance portion of the premiums, but these policies can be more risky as well.

Variable life insurance

Variable life insurance allows you to determine which investments are used for your savings account component, not the insurance company. You can choose low risk investment options which offer lower returns but more security, or you can choose high risk high return investment options. The death benefit for this policy type will vary, but is guaranteed to be a specific minimum amount.

Variable universal life insurance is a hybrid between variable life coverage and universal life coverage. The right life insurance type will depend on your specific situation, so make sure you know all your options before making your decision.