When you are getting life insurance, it is often hard to know what type to decide on. The different options can seem overwhelming, especially if this is your first-time shopping for coverage. The good news is that most types of life insurance are either term or permanent, so it’s not as complicated as it might seem.
What to Know Before
Even if you are getting a permanent policy, that doesn’t mean you have to keep the coverage later on if you find you no longer need it. You can choose to sell the policy through a life settlement so you can receive the funds at a later time. If you are thinking of going this route, you can review a guide that explains the whole process.
Term
This type offers coverage for a certain amount of time, which is usually about one to three decades. It does not have a cash value, since it only pays the beneficiary a certain amount if you pass away. The premiums usually stay the same, meaning the amount you pay every month is unlikely to change. And once that term is over, your beneficiary will no longer receive coverage. You will need to either think about getting another one or going without. Think about how much coverage you want when getting this type. For example, some couples choose to have coverage until they pay off the mortgage or have grown kids. That way, the surviving spouse has some financial safety net if the main income earner passes away. There are calculators to help you decide how much coverage to get.
Whole Life
These policies are relatively simple but there are key things you should know, since the coverage continues as long as you keep paying the premiums. Since it’s a type of permanent coverage, you will continue to receive its benefits for the rest of your life. Some of the premiums go toward its cash value, and it can grow over time. There are several advantages of this type of coverage. Once the cash value has grown high enough, you can choose to borrow money against it. It can also be used to pay the premiums in the future. And if you want more money to use during retirement, you can even surrender it to receive cash for it. Just do your research before choosing a policy, since they can cost you more money than if you put the funds into a savings account.
Universal
This is another kind of permanent and has both a cash value and benefits for a lifetime. Still, the differences are that the premiums are a bit more flexible. With this type of coverage, you can choose to pay more or less into the policy, as long as you are following any limitations. If you decide not to pay as much in, you may eventually need to pay a higher amount so you can keep the coverage. But you can use it to adjust to your personal circumstances since it still offers cash value.