When most people think of life insurance, people have one idea: you pay a monthly fee in the hope that when you die, the insurance company will pay your family a large cash sum so that they will be taken care of when you are gone. However, not all insurance policies are the same, and it is important to know the differences when purchasing life insurance.
There are five different types of life insurance:
- Term Life
- Whole Life
- Variable life
- Universal Life
- Universal Variable Life
Term Life Insurance
Term Life Insurance is what most people think of when they think of life insurance; it is the easiest and least expensive type. You pay the monthly premium, and on your death, your family gets the large lump sum (for example, $100,000, or $200,000) called a death benefit.
Whole Life Insurance
Whole Life Insurance is a little different. You can withdraw from the policy at any time, your premiums are fixed, and lets the insurance company have complete management control over your account. However, whole life is less flexible than most plans, with no flexibility with face value or premium rates.
Variable Insurance has several differences, one main difference which is that you can borrow money from the policy while you are still living. The variable insurance plan is much more flexible and gives permanent protection for your beneficiaries.
Universal Life Insurance
Universal Life Insurance is a policy that lets you use the market rates for your insurance plan, giving you more control over the plan (though this includes more risk). One downfall is that it doesn’t let you separate the money into different account types.
Universal Variable Life Insurance
In Universal Variable Insurance, you have a lot of freedom and flexibility. You can borrow money against your policy, terminate your policy and receive partial money, as well as split the money between different types of stock accounts. However, with this freedom, it puts more work on the policyholder, to look out for their own interests. So if you do not know anything about the stock market or how to handle large sums of money, this is probably not the plan for you.
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