If you’re like many people who are looking for life insurance as a way to protect their families, you may be totally confused at trying to determine which of the available options is best for you. You may not understand the differences, what the built in guarantees are, or what will give you the best return on your investment. MSN Money breaks things down and provides a very helpful understanding about what you get with each type of life insurance, how they differ, and how you can determine which type of policy is best for your needs.
Term life insurance, as its name implies is just that. The policy is designed to last for a specified term. As long as you pay on the policy during your lifetime, you’re covered. If you die before the end of the specified term, your beneficiaries will collect the death benefit. If, on the other hand, you die after the term ends, your beneficiaries get nothing.
Term life policies are very flexible. You can choose to purchase coverage that lasts for 10 or 20 years, or you can opt to purchase a policy that will extend beyond age 70. Rate plans may vary, as some companies add a clause that allows them to raise the rates to cover their increased expenses. Additionally, some companies may use health as a factor in establishing what your premiums are.
Permanent or Whole Life Insurance
Permanent life insurance is more expensive, but in this case, you’re getting what you pay for, and in many cases, much more. It offers you the added security of a built-in savings or investment account. The longer you make payments, the greater its cash value. When you die, your beneficiaries will collect a death benefit that it frequently considerably more than what you paid in.
Permanent life insurance premiums don’t change: they remain the same year after year. When you first take out your policy, part of the added cost of your premium is placed in an investment account. As interest accrues, the value of that policy also increases. Upon your death, the profit that this type of policy earned is not taxable, so your beneficiaries don’t have to worry about paying capital gains taxes on the investment.
Another added advantage to permanent life insurance policies is the security it offers in times of great financial duress. You can borrow money from the policy and any taxes you’d ordinarily have to pay on the interest is deferred.
There are three types of permanent life insurance: whole, universal and variable life insurance.
- Traditional Whole Life
Traditional whole life offers the most security and the best guarantees. It offers guaranteed minimums for both the death benefits and cash value. There is also a guarantee on what you’ll pay for your annual premiums, so you don’t have to worry about unanticipated premium increases. Traditional whole life is best for people who prefer to make more conservative investments, and for people who aren’t real great at saving money.
- Universal Life
If you’re looking for more flexible premiums immediately after purchasing your life insurance policy, this may be the best option for you. It also offers the guaranteed minimums for both the cash value of the policy and for death benefits to beneficiaries.
- Variable Life
If you can afford to be a riskier investor, then you may want to look into variable life insurance. There are fewer guarantees on this type of policy (in terms of what the premiums will be,) but that trade off comes with the greater potential for increasing the cash value of this type of policy. There is still a guarantee on the maximum you’ll have to pay out in annual premiums, and a guarantee on the minimum that your beneficiary collects in death benefits.
Before making any decision, contact the experts at Dean Davis Insurance in Austin, TX.More