What Kind of Life Insurance is Best for You?

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Do you know what kind of life insurance is the best buy for you? Even if you’re already familiar with the various kinds of policies, it helps to review the key differences so you’ll know how to achieve exactly what you want from the coverage you buy. Sometimes you’ll read that there are just two kinds of coverage: permanent and term. That’s basically true, but under the permanent category, there are multiple variations to suit needs of policyholders with differing financial goals. Here are the five most common categories you’ll run into when you begin to investigate your options.

Permanent

There are dozens of types of financial arrangements when it comes to insurance, but permanent policies come in three basic varieties: whole, universal, and variable universal. They are all quite different from standard, simple term policies in that they last until you die or stop making your premium payments. That’s why agents refer to them as permanent.

Another common aspect of this kind of coverage is a cash surrender value, a dollar amount that you can withdraw or borrow against after it has built up to a specific level. For example, you might pay whole life premiums for 10 years and build up a cash surrender value of $3,000. Depending on the specifics of the contract, you could borrow the amount, interest free, or simply take it out and spend it on whatever you choose. Note that some policyholders choose to borrow against the value rather than pull it out directly. That’s because pulling it out and not paying it back automatically terminates the coverage.

Term

The simplest and least costly of all kinds of insurance, term is aptly named because it lasts for a fixed number of years, the stated life of the contract. There are three ways this kind of contract can end: you can die before the period is up, the contract can expire while you are still living, or you stop paying the premiums. People generally purchase coverage for years in multiples of five, beginning with 10-year spans. Note that there is no cash value with this kind of coverage.

Whole

Whole insurance lasts for your entire life, unless you stop paying the premiums. Most come with several extras like a stated cash surrender value, options for no-interest borrowing after several years, and more. The cost of monthly premiums is higher than for term, but buyers are getting a lot more for the money with all those extras.

Universal

If you want adjustable premiums based on the built-up value after a certain number of years, this kind of protection might be a smart option for you. In some cases, it’s even possible to use the accumulated value to completely offset premium payments. You still have the ability to borrow against that cash like the equity in a home, or let it grow over time.

Variable Universal

This complex choice is ideal for folks who like to choose the risk level of the invested cash. There’s no guarantee that your choices will pay off, but some people simply like the idea of controlling their financial destiny in variable universal contracts.

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