Understanding Life Insurance Options: A Comprehensive Guide

There are many different types of life insurance policies out there that you can purchase. In order to be financially successful, insuring yourself is essential. Regardless of how well you do in other endeavors, your family can still be devastated if something were to happen to you. With so many different types of life insurance to choose from, it can sometimes be difficult to determine which type you need. Here are a few of the different types of life insurance policies that you can get.

Term Insurance

Term insurance is a type of life insurance that covers you for a specified period of time. One of the most popular term policies goes for 20 years. This type of insurance is considered pure insurance as there are no other aspects of the policy. While some policies include an investment aspect or cash value, this only covers you if you die.

You cannot cash it out and the premium stays the same as long as you pay it. Investment gurus argue that this is the best policy as you can invest the difference that you save between it and other policies. Then you are in control of your investments instead of someone else. The first 20 years of your adult life is when you have the most risk. You usually have kids during this time and have a high mortgage balance. Term insurance will help minimize your risk during this period.

Whole Insurance

Whole life insurance is another type of insurance that actually builds cash value as you go. It is more expensive than a similar term policy because part of your premium goes towards an investment portfolio. For those that do not like to handle their own investments, this is a good way to go.

Another unique aspect of this type of policy is that you can actually borrow against the cash value up to 90%. Therefore, you can secure a low interest rate loan relatively easily if you need it. It could take several years before you have enough cash value to borrow against though. This type of insurance can last your entire life if you want it. As long as you renew the policy, it keeps growing.

Universal Life

Universal life combines elements from both plans to form a more flexible product. It is designed to be a full life product much like whole life. However, instead of just paying your premium and not knowing where your money is going, you have full access to everything. They show you how much is going to administrative, how much is going to the mortality pool, and how much is being accumulated in your cash account.

When you pay your premiums, part of it goes towards increasing the cash account. Interest is paid to the account every period and administrative costs are deducted from this. If you were to cash out your policy, the amount in your cash account is what you would get. You can also direct the investments as you have more control over where your money goes.