Life Insurance Policy Basics

What is life insurance? It is a policy that will provide funds to the beneficiary on your policy if you were to pass away. Much like any form of insurance, you will need to pay a premium to keep your policy active. There are many people who debate whether or not life insurance is a necessity. The answer is based on personal preference and current circumstances.


Why would someone need a life insurance policy?

There are many reasons a person would need a life insurance policy. The most common reason is simply because if you were to pass away and your family would struggle financially. Having a life insurance policy will ensure that your family will be able to make ends meet until other arrangements can be made. If the death were sudden, your policy would help cover funeral expenses as most people will not have enough to meet the financial requirements plus living expenses.

What types of life insurance are there?

There are five types of life insurance policies you will need to choose from; term life insurance, whole life insurance, universal life insurance, variable life insurance, and variable universal life insurance.

What are the differences between the various types of life insurance policies?

Term Life Insurance:
This is usually the cheapest option for life insurance. The benefit is that you can buy it for a certain period. The drawback is that if you were to be alive after your period is up you will lose the money you invested unless you renew your policy.

Whole Life insurance:
This type of insurance is the most commonly purchased of the various policies. You will pay a premium that is consistent throughout the term of your policy. One benefit is that the money you put in accrues and allows you to take out a loan if needed. However, your loan balance will be deducted from the overall amount when you pass away.

Universal Life Insurance:
This option allows for more flexibility by letting you change the amount of your premium. Unfortunately, the flexibility option will cost more than traditional life insurance.

Variable Life Insurance:
This option does offer a higher cash reserve, but increases are not always definite and it is still possible lose on your investment.

Variable Universal Life Insurance:
This life insurance option is a mix between Universal and variable life insurance. This policy has a cash value that you can borrow against if needed. You will be able to choose how your premium is invested into the policy which causes a fluctuation in the cash value and the death benefit, depending on how you invest.

Choosing between the five types of life insurance can be difficult and seeking professional guidance is wise. You will want to choose a policy that will be most beneficial for you as well as the person receiving the fund upon your death.