Life insurance provides vital financial protection for loved ones after someone passes away, with proceeds distributed upon his or her demise as well as possible living benefits1.
Different kinds of life insurance may suit various needs. When making this choice, take into account your goals, coverage needs and any cash value benefits that might be of importance to you.
Term Life
Term life insurance provides death benefits over an agreed-upon term, usually 10, 20, or 30 years. Premiums remain level throughout this time.
As there’s no investment component with term policies, the insurer’s risk is reduced compared to whole life or universal life policies and they may offer lower premiums. Unfortunately if you outlive your term policy period and end up outliving its term limits you won’t be eligible for payouts and your death benefit will terminate.
Based on your needs for purchasing life insurance, you may need a term policy to cover expenses like debts or funeral costs. Or alternatively, an increasing or decreasing term policy with scaled death benefits during its term may be more suitable. When your policy comes due for renewal, typically family members will inherit any unclaimed death benefits from it when it expires; most insurers permit conversion from term to permanent plans at that point – though typically only with limits placed on premium increase potentials.
Whole Life
A whole life policy offers death benefit coverage over your lifetime as well as tax-deferred savings benefits, but they may be costly, so it is wise to carefully weigh its benefits versus costs before deciding upon this form of protection.
Whole life insurance offers many advantages, with part of each premium payment going directly into an account known as the cash value that accumulates over time. You can access this money either during your lifetime or at retirement with interest-free loans available both ways.
Whole life insurance offers death benefit protection no matter your health status, making it a wise investment choice for people who want to ensure that their beneficiaries will receive payment upon their passing. Furthermore, whole life policies can serve as valuable succession planning tools for business owners.
Universal Life
Universal life policies (or “ULs”, for short) provide flexible premium payments, access to cash value growth and lifelong coverage. They may be suitable for individuals who prefer greater control of their premium payments and/or cash value growth without the additional risks imposed by variable universal life or index universal life (IUL) policies.
With a universal life policy, any excess premium payments over and above the cost of insurance are deposited into a cash value account. Over time, your insurance provider deducts an expense fee and protection cost from this account while adding back any interest earned on it.
With a universal life (UL) policy, your excess funds from premium payments may be invested in various investment vehicles – from equity index accounts to bond mutual funds – but these options may carry greater risk than whole life policies and could potentially erode its cash value balance.
Variable Life
Variable Universal Life (VUL) may provide more investment flexibility than whole or term life policies, offering both death benefits and cash values as permanent policies would. But with VUL, premiums may also be invested professionally managed options like mutual funds and stocks; this type of permanent policy tends to cost more and may require you to pay an early premium call fee should investments perform poorly or your account balance decline below certain thresholds.
If your goal is to ensure that your family can cover a mortgage or other financial commitments, a guaranteed universal or term life policy would be an ideal solution. As its underlying investment subaccounts may experience market fluctuations and risk, and potential gains or losses, consult a financial professional about whether a VUL policy could work best for you.