As mentioned in part one of this article, term life insurance is the most popular type of life insurance amongst consumers. This is due to the fact that it is both cost effective and easy to understand. However, there are other types of life insurance that will provide you will additional benefits. You may very well decide to invest in one of the policies that are listed below depending on a vast variety of factors. It is always a smart idea to consult with an insurance professional prior to making any insurance related decisions that can affect the financial security of your loved ones.
Permanent Life Insurance
Although term life insurance is fairly easy to understand, permanent life insurance becomes a tad more complicated. This is due to the fact that permanent life is trying to accomplish two things at once. First and foremost, the intent of a permanent life insurance policy is to pay your beneficiaries in the event of your death. The second part is where it becomes more complicated. Permanent life insurance can also be used as an investment account because it includes something called cash value. In essence, cash value is like a savings account where you deposit money every month.
It is a pool of money that you own, which means you can access it or borrow against it. The longer that you have the policy, the more cash value the policy actually has. Another bonus is the fact that the permanent life insurance policy does not expire. In essence, it will continue on until the day you die, or cancel the policy. The details of how much money your loved ones will receive upon your death, how the cash value grows, and other important factors typically depends on the exact policy that you purchase. Permanent life insurance policies can include whole life, universal life, or variable universal life.
Whole Life Insurance
When you purchase a whole life insurance policy you pay a locked in premium amount to the insurance company each month until you either die, or decide to cancel the policy, which of course is not recommended. A portion of the premium goes into the cash value, which grows over the whole life of the policy. In essence, the longer you own the policy, the more money it is worth from a cash value perspective. Although whole life insurance is more expensive than term life insurance, having the opportunity to utilize a portion of your monthly payments as a cash value is certainly something to consider if the premium is still affordable.
Universal Life Insurance
Universal life insurance has a death benefit and cash value just like a whole life a whole life policy. However, universal life insurance policies offer adjustable premiums. In essence, you may be able to access some of the cash value in order to adjust your payments, which is a nice benefit that saves you money out of pocket. The bottom line is that the investment will grow over time, and may even be enough to offset the premium all together. Keep in mind that if you do choose to apply cash value to your premium payments, the cash value will decrease. That being stated, it is a worthwhile option to have, and is certainly something to consider if the premium is affordable.
Variable Universal Life Insurance
Perhaps the most complicated life insurance program is the variable universal life insurance policy. In essence it is a life insurance policy, a savings account, and a mutual fund all wrapped into one investment vehicle. Variable universal life provides you with the ability to decide how your cash value is invested. As with any traditional mutual fund, there are both rewards and risks involved in the process. Here is how it works. You will be presented with a vast variety of investment options for your cash value, and you choose how risky you are with the investments. The bottom line is that you are in control of where your money is invested, however the policy has zero guarantees regarding how much money the cash value will end up being worth.
It is important to fully understand exactly what you are buying when it comes to insurance policies. If you have any questions, please call (508) 831-0133 to contact an associate at Zawada Insurance. We are happy to walk you through the details of your insurance policies and explain your coverage options. We look forward to helping you with all of your personal and or business related insurance needs now and in the future.