Life insurance is not all the same.
You have heard you need it, right?
If you are single, it is helpful to acquire enough to bury you and pay off your debts.
If you are married or have children, you will need more.
Your children and surviving spouse could lose not only a parent and partner but also all financial security and dreams for the future.
You need life insurance.
According to a recent Investopedia article titled “Whole Life vs. Universal Life Insurance,” you need to understand different types of life insurance.
The first distinction is between term insurance and permanent life insurance.
Term life insurance will pay a death benefit within a specific period of time.
Permanent policies provide coverage for your lifetime.
Are permanent policies able to be cancelled?
They can be cancelled and you can receive the amount of cash value in the policies.
Why does it work this way?
Permanent policies typically have to parts.
The first part is investment savings.
The second part is an insurance part.
Permanent policies have higher premiums, but the individual who owns a policy can also take out loans against its cash value.
Permanent policies have two different subcategories.
They are whole life insurance and universal life insurance.
What are they differences?
Whole life insurance is a long-term venture.
It gives individuals guaranteed cash value accumulation through consistent premiums.
Whole life requires a higher cost upfront and is wonderful plan for long-term responsibilities.
The money you pay for the policy enters a tax-deferred, high-interest bank account.
The dividends you gain can be disbursed annually to you, left in the account to grow interest, used to purchase more coverage, or applied to reduce premiums to your policy.
Universal life premiums payments are more flexible.
After your first premium payment has been made, you can pay your following premiums at any time within outlined limits.
You can even pay in a lump sum for your policy.
When you make a premium payment these enter a investment account and accrue interest at a tax-deferred basis.
What happens if you enter a time of financial hardship?
You can decrease or stop your premiums or you could use the cash value in the account to pay premiums.
Although these are great benefits, there is also a downside to the universal policy.
Depending on the interest rate, poor performance mean estimated returns are not earned.
You can choose to decrease the face value of your policy or terminate your policy, but you may owe surrender charges to the cash value of your policy.
If you need help choosing the best life insurance option for you family, discuss your circumstance and goals with an experience life insurance agent.
Reference: Investopedia (April 18, 2019) “Whole Life vs. Universal Life Insurance“