There are different types of term and permanent life insurance policies. What is the best type of policy for you? That depends on various factors, such as how long you need coverage, how much you are willing to pay, and whether you want a policy that builds cash value over time.
2 Main Types of Life Insurance
There are two main types of life insurance: term and permanent.
1. Term life insurance policies last for a set number of years. The policy expires with no payout if you don't die during that time.
2. Permanent life insurance policies last your entire life. They usually have a cash value component, which you can access while alive.
4 Types of Life Insurance Policies
This section discusses four life insurance policy types: term, whole, variable, and universal.
1. Term Life Insurance
Term life insurance can be bought for terms of one to 30 years. Your coverage depends on the policy, but it can be worth millions of dollars. Level premium term life insurance keeps the same price for the whole term of the policy. Annual renewable term life insurance is a policy that lasts one year and renews itself yearly. Annual policies can be useful if you only need coverage for a short time or if you have short-term debts.
What's the Catch?
While it's often the cheapest life insurance and is generally sufficient for most, your beneficiaries won't receive a payout if you outlive your policy.
2. Whole Life Insurance
Whole life insurance is a policy that will last until your death, as long as you continue to pay the premiums. It is one of the simplest forms of life insurance to have in terms of not having to worry about it. Your premiums will usually stay the same, you will get a guaranteed rate of return, and the death benefit will not change.
What's the Catch?
While it builds cash value and covers you for your entire life, it is usually more expensive. It's not the best option if you're looking for affordable life insurance.
3. Variable Life Insurance
A life insurance policy's cash value is based on investment accounts, such as bonds and mutual funds. The premiums for this policy are usually fixed, and the death benefit is guaranteed, no matter how the market does. If you're considering getting a policy like this, a fee-only financial planner can help you choose the best one.
What's the Catch?
While there are potentially considerable gains if your investments perform well and you can partially withdraw from the cash value, it requires hands-on management. This is because the cash value changes daily on the market. Plus, administrative charges and other fees are deducted from the payment before going toward the cash value.
4. Universal Life Insurance
With guaranteed universal life insurance, you are guaranteed a death benefit, and your premiums will not change. There is usually no cash value within the policy, and insurers require timely payments. You can choose the age you want the death benefit to be guaranteed.
What's the Catch?
While it's cheaper than the other three life insurance types due to the minimal cash value, missing one payment could mean a forfeited policy. And since there'd be no cash value in the policy anymore, you'd walk away with nothing.
Conclusion: Which Policy Suits You Best?
The type of life insurance policy best for you depends on your needs and budget. For most people, term life insurance is sufficient, and it's the cheapest type of coverage. It lasts for a set period and pays out a death benefit if you die during that term.
If you're interested in coverage that lasts your whole life, a permanent policy like whole life insurance might be a good fit. These policies can accumulate cash value over time. Once you've built enough, you can start taking out loans against your policy.
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If you need insurance advice services on the Gold Coast, Swell Financial Planning is the law firm to go to! Get in touch with us today and let us know how we can help!
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