Gone are the days when life insurance was considered a luxury. Instead, there are many reasons why life insurance is a necessity. The reasons are many. For instance, when insured, they would not need to lose sleep over their loved ones in their mortal absence.
In this context, one must also remember that when they are shopping around for life insurance policies, they might face a bit of confusion. The reason is simple. There are quite a few variations of life insurance policies. In the following sections, this post will shed light on the three major types of life insurance. The goal is to give the reader some semblance of clarity when shopping for the right life insurance.
Here goes –
Whole Life Insurance
One of the most popular variants of life insurance policy people in the US choose is whole life insurance.
Unlike term life insurance policies, whole life insurance policies last for as long as the policyholder is alive. Furthermore, whole life insurance policies entail cash value and a savings account as an investment medium. The cash value of whole life insurance policies is tax-exempt. Choosing a whole life insurance policy over a term life insurance policy can help the policyholder cover expenses like estate plans or endowments.
There are downsides as well. For instance, the premiums of whole life insurance policies are costly, and the clauses are a bit complex to understand.
Term Life Insurance
Another most popular types of life insurance policy are term life.
Simply put, term life insurance policies let the policyholder remain secured for a predefined number of years. After the set number of years is over, the insurance policy expires.
The policyholder has to pay premiums to keep the policy alive for its term. However, if the policyholder dies before the policy's term expires, the policy's designated beneficiary will get the death benefit. Death benefits are paid out to the beneficiary as a lump sum or annuity (installment).
Please note that it is best to choose the death benefit to be paid to the beneficiary as a lump sum to keep the payout from being taxed.
Universal Life Insurance
Universal life insurance policies offer cash value to the policyholder. At the same time, every premium paid by the policyholder adds to the death benefit as well as the cash value of the policy.
The best part about universal life insurance is that the policy variant allows the policyholder to make the most out of flexible premiums. But, at the same time, there is a downside to this policy variant. For instance, one must be prepared to pay taxes for withdrawing cash from the policy’s cash value. Furthermore, one has to pay hefty interest rates if they take a loan out of the policy’s cash value.
Conclusion
It is best to remember that applying for a life insurance policy is a bit complicated, to be honest. Hence, one must consult with an expert specializing in life insurance consultancy services for the best results.
