Life insurance seems like it is
becoming more and more a necessity, rather than a nice-to-have.
In the past, you only needed to get
life insurance if you had beneficiaries and if you wanted to ensure that those
beneficiaries ended up with fewer headaches upon your death.
But nowadays, life insurance has
become a more complicated gambit. It isn't only about protecting your loved
ones from unnecessary financial hardships upon your death, but it has also
become a sort of investment tool.
There are many different types of
life insurance that you can take advantage of, to ensure that your financial
portfolio is a holistic one. Let's take a look at the types of life insurance,
and the pros and cons of each one.
The
Different Types of Life Insurance for You to Consider
The reason that you need to consider
your life insurance options, is because you need to make sure you pick the one
that is best for you and your specific needs. Picking the same one as the one
your colleagues chose is not the right way to do this.
Let's look at the different types of
life insurance out there, so you can have a better idea of your life insurance
options.
1.
Term Life Insurance
The cheapest way to buy insurance is
to get term life insurance, where you would be able to buy insurance in periods
of 1, 5, 10, 15, 20, 25, or 30 years. You can get coverage for the period of
time you think you would be alive for.
The great thing is that this
insurance policy is cheap to buy, but the con is that you might outlive the
policy, resulting in your beneficiaries getting nothing. Coverage amounts vary
depending on the policy that you buy.
2.
Whole Life Insurance
As long as you keep on paying the
premiums, whole life insurance will last until your death. Your premiums will
stay the same until your death, and the death benefit amount doesn't change no
matter how much money you put in.
The great thing about this policy is
that you get a guaranteed rate of return on the policy's cash value, which is
why a lot of people use this life insurance as an investment as well. It's a
two-in-one kind of deal.
The con is that it is definitely
more expensive than the other types of insurance out there.
Modified
Whole Life Insurance
There is a modified life insurance policy as well, where there is a
waiting period of 2-3 years. In this waiting period, in case of accidental
death, only the premium payments plus interest are paid to the beneficiaries.
After the waiting period, the full
benefit is paid out, for any reason. The great thing about this kind of
insurance is that you can still get it, even if you have previous health
conditions, even serious health issues.
The premiums for this kind of plan
are high because people with serious health risks end up using this kind of
insurance.
3.
Universal Life Insurance
There are two kinds of universal
life insurances. Let's look at them in detail below.
Guaranteed
Universal Life Insurance
In this insurance policy, your death
benefits are guaranteed until the age you choose, which could be 95 or 100.
There is no inherent cash value in the policy, and the premiums don't change
throughout the life of the policy.
But the con is that the insurers do
demand that you pay the premiums on time. Even a single missed payment might
mean that you forgo the entire policy, which means all your payments go down
the drain.
Indexed
Universal Life Insurance
In this life insurance, the policy's
value is indexed to a certain stock market index, like the S&P 500. The
great thing about this policy is that if the stock market does well, you will
see significant gains.
But every policy also has investment
caps, which means you aren't taking full advantage of the market gains. Also,
this kind of investment life insurance requires much more monitoring than other
kinds.
There is also the 'participation
rate' which is the rate at which dictates how much your cash value participates
in any gains. For example, if your participation rate is 70%, and the S&P
500 index goes up 10%, you get a 7% return.
If the index value goes down, then
you don't lose any cash value, but you get a zero rate of return. As you might
imagine, you would have to do some serious number crunching before taking this
policy on.
4.
Variable Life Insurance
There are variable life insurance
policies and variable universal life insurance policies. They are both tied to
the value of an investment account, such as bonds or mutual funds.
The variable life insurance has
fixed insurance premiums, and a guaranteed death benefit, regardless of the
value of the investment account.
Whereas, the variable universal life
insurance, the premiums are adjustable, and the death benefits are not
guaranteed.
You can make significant gains in
your policy value, if the stock market does well, but it does mean that you
need to be a lot more hands-on with the policy, monitoring the policy value.
5.
Group Life Insurance
This one is pretty self-explanatory.
If you are working with a well-established employer, they usually offer
insurance coverage to their employees, as part of the workplace benefits.
Premiums are offered to the group as
a whole, rather than on an individual basis.
The employers offer the basic life
insurance coverage in these cases, which can be upgraded to one with better
benefits if you so choose. The extra premiums would have to be paid by you.
The
Best Life Insurance for You Depends on Many Factors
Choosing a life insurance policy
isn't as easy as picking one from a basket of contenders. It requires some
serious thought and calculations.
That's why a lot of people choose to
forgo the complications by hiring an insurance agent to guide them through the
process. They will be able to help you figure out the best life insurance
policy for you from the different types of life insurance out there.
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