Understanding the Different Types of Life Insurance
Understanding the different types of life insurance may seem difficult, but it’s really not. People have made the subject more complicated than it is, because insurance companies talk about actuarial tables and so on. But the bottom line is there are really only two types of life insurance: term and permanent (cash value). Of course, within each category are variations on policies and terms, but it still boils down to the fact there are only two different categories. So when you are ready to shop for life insurance, you can begin your search from that perspective. It makes it much easier to understand the options.
Ready, Willing and Able
When you’re ready, willing and able to talk about obtaining life insurance, you should first learn the definitions of the two basic types. Term insurance is when you make payments according to the contract requirements, and if you die, a pre-determined amount is paid to your beneficiaries. This is a flat sum amount that represents the coverage you chose at the time of purchase with perhaps the addition of automatic cost of living increases.
The second of the different types of life insurance is the cash value policy. A cash value policy generates a cash value beyond the amount of life insurance coverage. There are different kinds of cash value policies called universal life, variable universal life, whole life, indexed adjustable life, indexed universal life and variable whole life. With whole life and universal life your cash value, which builds up as you make payments through the years, is guaranteed to be paid out at the time of death. The other two kinds of insurance, variable universal life and variable whole life, usually don’t have a guaranteed cash surrender value, but there are variable policies that do guarantee the life insurance death benefit.
It’s Your Life!
Your first decision, of course, is to decide which one of the different types of life insurance policy you want to purchase. The cash value policies are very popular, and are used like savings accounts in the minds of people. With a whole life policy, you get a death benefit and the accumulation of cash value through premium payments. But you can borrow against the cash accumulation, and if you die, the amount you borrowed is deducted from the death benefit.
With term insurance, you are only buying the death benefit. When you die, the amount of insurance coverage you purchased is paid to the beneficiary. Many term insurance policies don’t require a health exam and can be purchased for a very low premium depending on your age.
Since it’s your life and your family you are covering, making the best choice of the different types of life insurance depends on your circumstances. There are many factors which can affect your decision. These include age, income, number of children, debts and so on.
Keeping Change in Mind
Henry David Thoreau wrote, “Things do not change; we change.” One mistake people often make is buying life insurance and then never re-evaluating their needs. Yet circumstances are always changing. You may get married, have children, increase your debts, develop a medical problem or experience a number of other life changes. You should periodically review your life insurance needs and then compare then to the coverage you currently have. In fact, some of the different types of life insurance policies can be converted to another type, such as term to whole life cash value.
Life insurance is important to have in order to secure the financial security of your beneficiaries. Don’t let terminology scare you, because buying insurance is really not that difficult. Hodges & Company represents all the major life insurance companies. Let us find the best policy to meet your needs and objectives. We may be contacted by either completing the online request or by calling us at 713.993.9710 or toll free at 1.866.993.9710.
