Know more about permanent life insurance
Once you have decided to opt for life insurance, you have to be careful about choosing the right policy. Any decision taken in a hurry can leave you dissatisfied with the results and also disturb your expenditures. Hence, it is advisable to either do a lot of research about the numerous options available for life insurance or learn these facts from a professional (insurance agent or company broker). Basically, there are two main types of life insurance, namely term life insurance and permanent life insurance.
Term life insurance offers death benefits for only a specific period of time. Permanent life insurance, on the other hand, offers protection for your entire life (as long as you keep the policy active by paying premiums). Both these policies have their advantages and disadvantages. Depending upon your needs and the benefits that you want, you can choose the most relevant one. Permanent policies are further categorized into sub-types such as whole life, universal life, variable life, and universal variable life policies. Let us learn more about these types of permanent life insurance policies.
Whole life insurance is a type of permanent life insurance, where you get coverage for your entire life. The benefits provided are very different from those of a term life insurance policy. You need to make payments (premium) that are usually much more than that which is actually needed to pay for current costs of insurance coverage and related expenses. The excess payment is credited to the cash value account. This account allows the insurance company to charge a guaranteed premium and to provide death benefits and cash value throughout the life of the policy.
As you pay the premiums, the cash value account grows. This cash value can grow beyond its guaranteed amount through the payment of dividends (profits earned by a mutual insurer). This cash value can either be used as a collateral to borrow from the insurance company or can be directly accessed through a partial or complete surrender of the policy. If you opt for a partial surrender, it will reduce the policy's death benefit; and with a complete surrender, your coverage will be completely terminated. Once your policy matures, you will receive the entire accumulated cash value (equal at maturity to the death benefit).
Universal life insurance is a type of permanent life insurance where you get death benefits as well as a cash value account. Unlike whole life insurance, universal life insurance gives you the flexibility of making premium payments. Universal life insurance offers broad premium guidelines; following which, you can choose how much and when you can make your payments. As you decrease or increase your premium, your cash value component also gets affected accordingly. You can also change the policy's death benefits directly (within limits set by the company) during a period of financial crisis. However, if you want to increase the premium levels, you may be asked to undergo a medical examination. One of the prominent features of universal life insurance is that it reveals all aspects of the policy's cost structure, including the cost of the insurance and other expenses.
Variable life insurance is a type of permanent life insurance with a cash value account. You have the authority to invest the cash value account as per your choice. Variable life insurance need a fixed annual premium to keep it active and can also provide a minimum guaranteed death benefit. Variable universal life insurance, as the name suggests, is a hybrid of variable and universal life insurance. With this insurance plan you can get the flexibility as well as the authority to make your own policy decisions. Some plans may attract a group of people, while others may not. Irrespective of your final choice, make sure that you are aware of the benefits and disadvantages of every plan.
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