Choosing the best type of life insurance for your family is a key decision that should be made carefully. While there are many choices to choose from, it is important to understand the basic types of life insurance to make the most informed decision. A financial adviser or estate planner can help you determine what type of life insurance is best for your family's needs.
You can choose from two types of permanent life insurance. Whole life insurance is the most popular, but if you have an extended family or want to save money, universal life may be a better choice. This type of policy allows you to adjust the amount of your death benefit. The cash value can be used for investments, loans or saved for a rainy day. However, this type of life insurance may be more expensive than other options.
One type of life insurance pays a guaranteed interest rate. Unlike a savings account, you cannot withdraw funds from the account once you die. This type of life insurance is typically cheaper than a term policy, which only pays a guaranteed interest rate for the life of the policy.
A universal life policy has two major elements: the cash value and the death benefit. You can choose from a single premium whole life product, which uses a current interest rate assumption to determine your premium, or a variable universal life product, which allows you to make changes to your premium payments as your family's needs change. If you choose the first type of policy, it will be more expensive than a single premium whole life product, but it may be a good deal if you want to save money.
A term life insurance policy is a great way to get a short term financial safety net. If you have children or are about to start a business, a term life policy will help you to pay for the expenses associated with a new addition to the family. If you are an employer, you may want to offer group life insurance to your employees. It is a great benefit, but some employers do not offer supplemental life insurance. Supplemental policies are purchased privately, but they can bridge the coverage gap left by a group policy that does not offer a death benefit.
You may also be eligible for an accidental death and dismemberment policy. This type of insurance pays for people who are injured in an accident or dismembered, but only in certain situations. It is typically inexpensive to buy if purchased privately, but the coverage is limited. You must have a claim made to qualify for this type of insurance.
When you purchase life insurance, it is important to understand the difference between term and whole life insurance. While term life may be more affordable, it only pays out when you die. On the other hand, whole life insurance will stay with you for the rest of your life, even if you pay it off early. Whole life also accumulates cash value, which can be used to pay off loans, invest, or build wealth.
