Life insurance provides your loved ones (or beneficiaries) with a sum of money when you die. This money can be used to help pay off a mortgage, pay for a child’s education, pay for the deceased person’s estate taxes and other payments.
There are two major categories of life insurance. These are:
Term Life Insurance – Covers you for a certain number of years, at any stage of your life.
Permanent Life Insurance – Refers to any life insurance contracts other than group or term life insurance.
The three most popular kinds of life insurance are:
- Term Life Insurance
- Whole Life Insurance
- Universal Life Insurance
It’s important to understand the differences between each, so you can make the most informed decision about what type of life insurance to purchase.
Term Life Insurance is insurance without an investment component. However, your premiums will likely go up as you get older. In the case of premature death, term life insurance can pay off funeral and final estate expenses.
Whole Life Insurance is the most basic kind of insurance. It’s part savings, which is called a cash value, and includes a death benefit. Whole is more expensive and has higher premiums than term life insurance because it provides more guarantees. You can receive a certain amount of cash at a future date.
Which is better, term or whole? Whole life insurance policies have a benefit while the person is still living—while the cash builds up over time, you won’t have to pay taxes on the gain each year, and money can be used to supplement your retirement funds. You can’t do this with term life insurance. What’s more, you can add a rider to a whole life policy, which would enable someone who has a terminal illness to access as much as two-thirds of the benefits while they’re still living. This is another benefit that term life doesn’t offer.
Universal Life Insurance blends both whole and term life insurance. There is a cash value, which can be tied to a fixed interest rate that will adjust annually. Universal also offers flexibility in the amount you pay toward the premium. There is a savings portion, which can go toward paying for your insurance coverage.
Another type of insurance is Variable Insurance. This lasts for the duration of your life and includes more investment options. It’s structured like universal insurance, but the policy value may increase or decrease depending on the investments made. Variable can also help you accumulate retirement funds, protect financial well-being of loved ones, or transfer wealth to the next generation.
There are other types of life insurance as well, such as Survivorship Policies. These provide coverage at the time of a person’s death. The contract owner may select variable investment options—stocks, bonds and money market funds.
Because there are many types of insurance out there, it’s best to talk with professionals who can help you choose the policy that best meets your needs.
Zawada Insurance Agency is your all-in-one resource for helping you find the right coverage for you and your family. We’re a family-owned and operated independent insurance agency, working to get you the most comprehensive coverage at a competitive price.
For more information about life, homeowner, car and other insurance coverages, please contact Zawada Insurance Agency today.
Zawada Insurance Agency, Inc. located in Worcester, Massachusetts, serving central Massachusetts and beyond.