Let’s face it; buying life insurance is no easy task. For one thing, no one is excited about contemplating their death, thus impeding on their ability to be rational when it comes to buying the life insurance. On the other hand, there are so many different life insurance options flooding this market, giving buyers too many to make a decision. However, the first important decision is to decide whether you want term or whole life insurance.
The names say it all for both. Term life insurance is meant for just a period of time, typically from 20-30 years. On the contrary, whole life insurance is meant for the entire life span of the buyer. In addition, whole life insurance has the added bonus of being able to act as cash value. This means that some of the money that is paid into the policy every month is saved or invested. This gives the option of cashing some out or borrowing some if needed.
Whole life insurance is often referred to as a hybrid product, because it is a blend between insurance and a savings or investment vehicle.
There are three basic types of whole life insurance:
1.) Universal. This is most basic type of whole life insurance. This is when some of the premium paid by the customer goes toward death benefits and some goes toward savings or a very safe investment.
2.) Variable Life. This one is more of an investment, because most of the premium goes toward investing in the company’s insurance fund. This tends to be viewed as riskier, because the death benefit can be impacted by investment returns. If you want a guaranteed death benefit, you’ll have to pay more toward your premium.
3.) Variable Universal. It’s pretty easy to tell by the name, but this is a mix of the first two. It typically offers a guaranteed death benefit, but the payments not going towards the premium can be invested as the customer sees fit. This is more flexible than Universal, but safer than the typical variable life.