What Are the Types of Life Insurance?

Life insurance is what financially insures a policyholder’s beneficiaries after the former passes away. But there’s more to this type of insurance than you think. There are many forms of this insurance, and each one functions differently to meet the specific needs of the policyholder. In this article, we’ll be covering all the life insurance policies you can get, how they work, and what makes them different.

Cash Surrender Value

Before we get into what policies there are, we need to go over something known as cash surrender value. Cash surrender value is what’s ultimately leftover after you go through the entire process of surrendering your policy. The amount you can receive is calculated by assessing how much you’ve paid on the policy, which are the premiums.

Then, the insurance company subtracts that amount from any fees and additional charges. Bear in mind, however, not every policy has this kind of value. You would only really cancel your policy if you no longer needed it or you’re looking to cut down on your retirement expenses. Canceling your policy doesn’t always mean you can’t profit from the excursion. You can click this site here for more information and calculate how much your policy is worth.

The Types of Life Insurance

Now that you know there’s always a way for you to maximize your profits, it’s time to go into what types of life insurance you can obtain. As we mentioned before, each insurance works differently, so they can cater to a person’s specific needs. Determining which life insurance policy suits you best is dependent on the details of your life and ultimately what your beneficiaries will need from your policy so taking the time to understand all the options is ideal.

1. Whole or Permanent

Source: investopedia.com

A whole, or permanent, life policy is the most commonly purchased as it’s what lasts until you pass away. As you pay the premiums throughout time, the overall value increases, which means the payout will be bigger. The best way to see a larger payout is to buy the policy at an early age and keep it active for years. You can consider this to be a buy it and forget it type of insurance. Moreover, what you pay in premiums will remain the same during the entire lifespan of the policy.

2. Term

Source: tdinsurance.com

Term life insurance is a policy that has a set amount of time attached to it. It’s basically the opposite of a permanent plan. Rather than build a cash value over time, you’re instead given a set amount of funds and a time limit. Term policies typically last at least five years and can be expanded for as much as 30 years. Many people get this policy in preparation for a potential situation.

For instance, if you end up getting seriously ill, but currently don’t have life insurance, you can buy this policy rather quickly and put any dependents on it as beneficiaries. You never know what could possibly happen in the future. Whether it’s coming down with an illness or dealing with an unexpected life change, a term policy can help you out when you need it.

In contrast to a permanent policy, term life insurance is a more affordable option. However, there’s a potential downside. The cash value reduces as the years go by, and if you somehow pass away after the policy’s deadline, your beneficiaries won’t receive anything. Something we should bring up before continuing on is choosing to sell your insurance. In some instances, some people may opt to sell their life insurance back to the company to receive a payout. If you sell a term policy, it’s more likely to receive a bigger payout if it’s able to be converted to a permanent or a universal insurance policy.

3. Universal

Source: investopedia.com

There are two variations of universal coverage; guaranteed and indexed. Guaranteed universal works similarly to whole coverage where your beneficiaries are guaranteed a death benefit and you don’t have to worry about fluctuating premiums. But there is almost no cash value attached and you must pay every payment on-time. Diligence is key here because missing just one payment could mean that you’re surrendering the policy.

Indexed is a completely different policy altogether. For starters, the value of the coverage is determined by the value of a stock market. What you can get is randomized, in a manner of speaking. If the stock market does well, then you could potentially see a massive payout. You also might be able to have flexibility in terms of premium payments and the death benefit.

But what you can gain will be determined based on the cap you’re given. Indexed policies give their holders a specific limit. To give you an example, let’s say you had a 30% increase within the index, and your cap is 10 to 15%. You would only receive 10 or 15% regardless of the increase. Should the rate go down, you won’t have to worry about losing any cash value. It’s just that you won’t see an ROI. Granted, there are some companies that give their clients some leeway by offering a guaranteed interest rate should the rate decrease or crash entirely.

4. Variable

Source: qardus.com

Similar to universal policies, variable life insurance comes in two variations: variable life and variable universal. Both are linked to investments, like mutual funds or bonds. When it comes to variable life, the premiums you have to pay are fixed and you’re guaranteed a death benefit no matter what occurs. Variable universal coverage is a lot more flexible, but you’re not ensured a death benefit.

The thing with these policies is that they can yield huge profits if you know what you’re doing with the investments. In fact, you can even borrow against it, if you need to. But it’s also similar to indexed universal policies where you must be constantly managing it. You’ll also have to factor in the company taking out fees and any other additional charges before anything is put towards the cash value.

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