What is life insurance? It is a kind of agreement between you and your insurer. According to the agreement you pay the insurance company payments, called insurance premiums every month (or annually, depending on the contract) and in case you pass away, people, who are mentioned in your policy, will be able claim money.
Life insurance is the most expensive kind of insurance. According to the statistics, people buy almost a million life insurance policies every week. Those, who buy this product, know less about it than anything else they buy. Someone may think, it is a product, everyone needs. In fact, it is not quite true.
Why do we need life insurance? Here are some examples, which will answer this question.
Life insurance is for breadwinners, whose death would reflect in financial income of others. If you are single and have little or no debt you probably only need to consider the cost of final expenses of your funeral.
Now, if you have decided that you really need life insurance, another step for you will be to choose, which policy you need. There are five basic types of life insurance:
– Term Life Insurance
– Whole Life Insurance
– Universal Life Insurance
– Variable Life Insurance
– Variable Universal Life Insurance
What is the difference between them? Here are brief definitions of each type.
Term Life Insurance is the cheapest type of coverage. You can bye it every year or for special period. If you die during the term, your heirs will receive money, but if you are alive when your policy expires, you lose money unless you renew for the additional term.
Whole Life Insurance is the most traditional. The premium stays the same for the length of the policy. A savings component, called cash value or loan value builds over time and can be used for wealth accumulation.
Universal Life Insurance offers some flexibility. You may change the amount of the premium. However, you pay for these flexibility higher fees.
Variable Life Insurance may provide a larger cash reserve, though increases are not guaranteed and losses are possible.
Variable Universal Life Insurance is a combination of variable and universal life insurance. The insurance policy has a cash value that enjoys tax-deferred growth over time, and allows you to borrow against it. VUL policies allow the insured to choose how the premiums are invested. This means that the cash value of the policy as well as the death benefit can fluctuate with the performance of the investments that the policyholder chose.
How can you choose the right type of insurance?
The best advice can be to hire an agent you can trust. A competent agent will take into account your needs now and any future needs you may have and help you make decision.