According to LIMRA International’s research, 6 million households with dependents do not have life insurance policies. 22 percent of all families with dependents admit they will not be able to afford daily expenses if the head of household dies. Buying Life Insurance can be overwhelming for many unprepared investors. The two main types of Life Insurance policies that every investor should know about are Term Life and Permanent Life policies.
Life & Health Insurance
Term Life Insurance provides a death benefit as long as the insured person passes away within the specified term of the policy. These policies need to be renewed at the end of the term and the monthly premium is based upon current factors in the Life Insurance industry as well as age and any health conditions of the insured at the time the policy is opened. When the policy needs to be renewed, factors are once again taken into consideration with updated information and will most likely increase the amount of the premium. Therefore, it is important for an investor to get a Term Life policy that will most likely cover the event of the insured’s death. These plans are the most affordable for the average individual and 10, 15, 20, and 30 year terms are the most common and only pay out death benefits to the named beneficiary.
Permanent Life Insurance most commonly includes Whole Life and Universal Life insurance policies. Permanent Life plans differ from Term Life in that they offer a cash-value which is added interest to the face value of the policy and these policies don’t run out in a specified term. Permanent Life policies are good for the entire lifetime of the insured as long as the premiums are paid in a timely manner.
The cash-value is guaranteed to match the face value when the policy matures and may be withdrawn when the investor needs to access it. Interest earned is tax deferred until it is withdrawn. According to Investopedia, “Generally, withdrawals up to the amount of premiums paid can be taken without being taxed.” Because of the cash-value, these plans offer a nice cash return for the investor, whereas the Term Life plans do not have any benefits until the insured is deceased. There is more information about this at Annuiquote.
Whole Life Insurance, commonly known as Cash-Value Insurance, is the most expensive form of Permanent Life Insurance and is the most basic of the Permanent Life policies to understand. These plans offer death benefits and a cash-value equal to the face value of the policy. Because of the greater return with these plans for the investor, the premiums are more costly than with other plans.
Universal Life Insurance is also known as Adjustable Life Insurance because it allows the investor more flexibility in when and how much of the premium amount is paid. This plan also allows death benefits to be adjusted as the investor sees fit, which differs from the Whole Life plan. Loans can be taken out of the premiums that have already been paid in this type of policy and may be tax deferred as well. However, with changing interest rates, these policies may not offer as much of a return as the investor may initially expect.
By knowing what the options are, an investor can best select the policy that will fit their needs and their budgets.