Part 2 – Life Insurance

In my last blog, I spoke about life insurance.  Let’s discuss the different types of insurance and the pros and cons of each.¹

There are two main types of life insurance: term life and permanent life. Then, there are several types of permanent life insurance.

Term Life Insurance

The policy term can range from 5 to 30 years; there is no cash value; the premiums are affordable, and the death benefit stays the same.

Term life insurance is mainly for people who want life insurance coverage for a specific debt or situation. For example, some people buy it to cover their working years as income replacement for their family in case they pass away. Some people buy term life to cover the years of a mortgage or other large debt.

If you still need coverage after the level term period expires, you could find the renewal rates to be unaffordable. And buying a new life insurance policy could be extremely pricey based on your age and any health conditions you’ve developed.

Whole Life Insurance

The policy term is from creation to the owner passes away; there is a cash value; the premiums maybe expensive, and the death benefit remains the same.

Whole life insurance can provide coverage for the duration of your life. An account within the policy builds cash value over time by using part of your premium payment and adding interest. A policy will have built-in guarantees that the premium will not increase, the death benefit remains the same, and the cash value will earn a fixed rate of return.

Whole life is suited for people who want lifelong coverage and are willing to pay for the guarantees provided by the policy.

Because of the benefits this type of policy offers, whole life insurance is one of the more expensive ways to buy life insurance.

Universal Life Insurance

The policy term is permanent – there is no range; there is cash value; the premiums and death benefits are flexible.

Universal Life Insurance can be hard to understand because there are a few varieties and with very different features.  This policy can be cheaper than whole life insurance because it generally doesn’t offer the same guarantees.

With some forms of universal life you can vary premium payments and the death benefit amounts, within certain limits. These policies often have a cash value.

Universal life insurance can be good for someone looking for lifelong coverage.

Not all UL policies guarantee you’ll make income. And if you’re interested in flexible premiums payments, you have to stay on top of your policy’s status to make sure that the policy’s fees and charges don’t deplete your cash value and cause it to lapse. Understand what’s guaranteed within a UL policy and what isn’t.

There are several more types of Whole Life insurance that I will discuss in my next blog.

¹https://www.forbes.com/advisor/life-insurance/types/#term-life-insurance