When most people think of Life Insurance, they think about the traditional Whole Life policies our parents and grandparents had or a Term Policy they have seen on TV. Yet, the industry has drastically changed in the last twenty years with many products are being introduced that are far better. There are even insurance products that allow you to invest and then take out your money without penalties or fees and use it for retirement, health issues and other needs. These insurance plans now have become like “retirement plans” with greater tax advantages than other retirement plans, even 401(k)’s and ROTH IRA’s!
Here are the First Two of the Four Main Types of Life Insurance
Whole Life Insurance. This is the tried and true type that has been around in various forms for decades. It has been the top product from 1940 through the 1970’s. It is primarily used as a death benefit and usually includes a “cash value” account attached to it. This savings account attachment, which accrues value that can last for the life of the policy holder or until age 100 or whatever the terms are set. This has long-term objectives, consistent premiums and has a guaranteed cash value accumulation. WLI gives consumers flexibility in the premium payments, death benefits, as well as the savings element of their policy. It is like the best of a term and a passbook savings account with guarantees. When there is enough cash value, the policyholder can take a loan against the policy to use for various expenses, such as a college.
Whole life insurance is Permanent Life Insurance, and it does not expire, you can set it and forget it, as long as you pay the premium. It is safe and easy. Your payments stay the same, you get a guaranteed rate of return on the “cash value” investment component of the policy. Also, the death benefit amount will not change unless you rewrite the policy. However, depending on the company, provisions and riders, it tends to be expensive. It usually has fees and interest rates that make it not always the best choice. Why some Financial Gurus say buy a term policy and a mutual fund and keep them separate. For older WLI policies, this is partially true; however, it is outdated and misleading information today. But for many, this is what they know and what they need.
Term Life Insurance. This is usually the most affordable form of life insurance and can be appropriate for most people. However, it has no thrills or benefits other than a death benefit, if the proper conditions are met. It is called, “term” because it lasts for a specific period of time, typically in lengths of 5, 10, 15, 20, or 25 years. And usually has an age cap. If you don’t die within the time frame specified in the policy, it expires without any payout or cash value. Beware, although there are some great companies that have good ones, some will rarely pay out, why they are cheap.
Riders. These are extra previsions added on to a Universal and Index Universal Life Insurance policy. This allows a policy to have additional benefits than a basic insurance policy. These are extra options that allow the policy holder to increase or limit the types and amounts of coverage. They usually have an additional premium; however, in most cases it is much lower than if purchased separately or from a traditional financial institution. The types, premium rates, and conditions of riders can differ from one company to another and also in which State it is issued in. Some of the most popular riders include: Long-Term Care, Child Term, Accelerated Death Benefit, Family Income Benefit, Guaranteed Insurability, Return of Premium, and Accidental Death.
What is the best type of life insurance? It all depends on your situation and a variety of issues. How long you want the policy to last, how much do you want to pay, will you be investing, and what do you want it to do?
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