Life Insurance Policies - What Makes Them Different?
There are many options with how life insurance is used, but there are five main types of life insurance. Term life insurance- this is pretty straight forward. It is insurance on an individual life for a specific period of time that pays a specific dollar amount at the time of death. This is the most inexpensive type of insurance and is usually used to cover a specific happening in the event of death; perhaps provide for a child education in the event of death prior to that child completing college.
Whole life insurance- provides permanent protection for your dependents while accumulating cash value. The life insurance company takes a portion of your premium and provides a life insurance benefit and then takes the remainder and invests it in other accounts hopefully getting a higher return.
This type of policy pays the beneficiary the face amount at death, but also provides some growth through company managed investments that grow tax-deferred. The downside is that the insurance company manages the money and you have no say in what type of accounts it is invested into.
Besides the tax-deferred benefit a whole life policy provides a fixed premium for the life of the insurance policy, it cannot be cancelled except for none payment. You may elect to receive dividends from your policy or use them to pay the premiums; disappearing premiums.
You also have the right to withdraw money from the policy during your lifetime.
Universal life- gives you what whole life does, plus allows the money to be invested in money market accounts, which pay a higher return than the conservative investments of the whole life policy.
Variable life insurance-offers permanent protection and gives you account flexibility. You can invest in low-risk money market, stock and bond funds. This account flexibility is for the more risk oriented investor.
This policy does not guarantee the death benefit, it will vary depending on the performance of the fund, but it does allow you to borrow from the account.
Universal variable life- gives you more control of the cash value, investment, side of the account. You can split up the monies to invest in a combination of money market fund, stock fund and bond fund. It offers premium flexibility and tax deferred accumulation.
But with flexibility it requires you to take the time to manage the investments. This policy works best with an individual who has considerable monies to invest, but wants a low risk tax deferred way to do it.
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