Types of Life Insurance
There are three main types of life insurance: term, universal, and whole.
Term life insurance covers you for a set period of time (usually 15, 20, or 30 years) and guarantees your beneficiaries a death benefit if you pass away during the term of the policy. Some insurance companies offer conversion riders that let you convert the policy to a permanent life insurance plan once the term ends.
Universal life insurance is a type of permanent (lifelong) life insurance that gives your beneficiaries a death benefit and allows for accumulation of a cash value to use during your lifetime. The cash value is often used to pay for premiums, which rise as the cost of insurance increases. You can withdraw from your cash value or take out a loan against it, but you will need to pay taxes on the withdrawn money and any unpaid loans will reduce your death benefit.
Whole life insurance is the original form of life insurance, which covers you for your entire life, promises your beneficiaries a death benefit and gives you use of a cash value that grows along with the market or a set minimum interest rate. You can withdraw money from your cash value tax-free and take out loans, but unpaid loans will be deducted from your death benefit.
Benefits of Life Insurance
The main purpose of life insurance is to serve as financial support for loved ones in the event of your passing. The death benefit is the coverage you should pay attention to and ranges from $100,000‒$10,000,000. Smaller final expense policies are available for seniors looking for just enough coverage to cover final arrangements.
Along with the death benefit is the cash value available with universal life and whole life policies. In most cases, this grows along with the market rate. Some policies allow you to invest the money in subaccounts for the stock market. In this way, life insurance can be a valuable savings vehicle during your lifetime.
Costs of Life Insurance
Term life policies have a level premium, as do whole life policies. They do not go up over time, even if you develop health conditions that lower your life expectancy.
Universal life policies often have flexible premiums, meaning you only pay the cost of insurance. As you age, this cost of insurance will increase. Luckily, the cash value savings component will help you continue to afford rising premiums.
Your age, health, and life expectancy can all impact your premiums. The earlier you sign up for a policy, the lower you can expect your rates to be.