Life insurance can provide you with essential finance-related benefits. However, attempting to maneuver the world of life insurance on your own can prove tricky and confusing. There is a good chance that you will come across phrases and policies that will not be easy to understand if you are not a financial expert or are not familiar with them.
So, how does a customer attempt to understand all these policies without ending up confused or overwhelmed by all the available information? The following is a breakdown of the most common types of life insurance.
1. Term Life Insurance
As the name suggests, this policy enables you to purchase life insurance for a certain duration or term. The period normally ranges between five and thirty years. Once you have this policy, you will need to pay a premium for its entire length, and once it has expired, so will the policy. In the event that you were to die before your term lapsed, the death benefits would be paid to a beneficiary of your choosing and would be between $5,000 and $5,000,000. It all comes down to what you need.
When you look at it from a cost perspective, this is deemed to be the most affordable. Your premiums will be based on your current health status, as well as the amount you have chosen. This means that if you are young and healthy, you will end up paying very low premiums. Currently, term life insurance is broken down into three terms: level, decreasing, and annual renewable.
This insurance provides the consumer with the option to only pay for the coverage that they require. For instance, if your current worry is life insurance for the kids while they are young, you could receive coverage for a period of twenty years. This means that you do not have to pay longer than is necessary.
As a client, however, you ought to understand this kind of term may prove to be a drawback in the long run. Additionally, it will not accumulate any cash value for you. In the event that you choose a term of twenty years, and later opt to extend it, the insurer may require you to undergo some tests.
Depending on the outcome, you could be denied coverage, or have it renewed at premiums that are much higher. If you have questions regarding this, you can contact our financial expert advisers in San Bernardino region.
2. Universal Life Insurance
Universal life insurance is designed to provide coverage for your whole life, and the good news is that it does have a cash value component. With this option, some of the premiums will be redirected toward your cash account. What’s even better is the fact that the cash account will also earn you interest.
Universal insurance comes with more flexibility, as opposed to a term life policy. The cash component in it means that you can, at some point, stop making payments, provided that the cash account has enough money to cover the premiums. You also have the option of either increasing or decreasing your death benefits as time goes by.
The fact that this life insurance provides permanent coverage means that it will be more expensive as compared to term life insurance. Additionally, the interest earned from the money being deposited into your cash account will not be as high as the amount you would earn if you were to invest in mutual funds or stocks.
3. Variable Universal Life Insurance
This insurance is similar to the Universal insurance discussed above, with the only variation being that you will have the option of where to invest the money going into your cash account. You, therefore, have additional control on the returns you will receive.
Provided that you are able to keep up with the set minimal premium, you will still get death benefits. In addition, you could also diversify your investments, enabling you to earn more money. Investing in a risky portfolio means that you could be placing your entire future in jeopardy. You have to be careful about how you approach each investment.
4. Whole Life Insurance
As suggested by its name, this is a policy meant to cover you for the rest of your life. Although its death benefits and premiums are fixed, you will still get to enjoy the cash value component. Younger people are normally guaranteed lower premiums as compared to their older counterparts. Whole Life Insurance ensures that there will be no surprises down the line, as the death benefits, interest rates, and premiums are guaranteed from the start.
Compared to all the other insurance policies, this is the most expensive. The added expenses are attributed to the various guarantees that have been provided for you.
As you can see, there are various life insurance policies available. But you need to choose wisely, as what is right for someone else may not be right for you. Take your time to learn about each policy to know if it will cater to your long-term needs. Need a financial planner in Riverside, CA? Don’t hesitate to read more details!