Life Insurance: The Ins and Outs

Life insurance is an important piece of your insurance puzzle, providing protection for your family in the case of your death. It is important to understand the different choices available to you before making a final choice about your coverage.

Types of Life Insurance

There are four basic types of life insurance from which to choose.

  • Term Life Insurance
  • Permanent, or Whole Life Insurance
  • Universal Life Insurance
  • Accidental Death Life Insurance
Term Life

Term life insurance is the most basic of all life insurance offerings. It is a specified benefit paid upon the death of the insured to his or her beneficiaries. Term life insurance expires after a specified period of time. If you survive beyond that specified period, the death benefit does not pay.

Whole Life Insurance

Whole life insurance pays a guaranteed benefit upon the death of the insured; unlike term life, it does not expire after a certain period of time.  However, the premiums may be considerably higher than they would be with term life as well. Whole life insurance builds cash value and the cash value can be accessed tax free for loan purposes provided the policy remains paid and active.

Universal Life

Universal life insurance is a product that provides more flexibility, a potentially higher rate of return, and adjustable premium payments. Universal life is often marketed as a retirement investment because the value of the policy remains untaxed if paid out after death. The policy has a cash value that earns interest and can be increased rather quickly in the beginning of the policy, making it a very attractive way to build a fund.

Accidental Death

The unfortunate truth about accidental death policies is that they rarely pay out as expected. There are several exclusions built into the policies, including exclusions for suicide and negligence. Accidental death policies are sometimes used as fringe benefits of other policies, so that you purchase a regular life policy and the accidental death rider says that if the insured dies in an accident, the death benefit will be larger than if the insured had died of natural causes.

Choosing Life Insurance

When you choose a life insurance policy, your choice will hinge on your financial ability to pay premiums, your long term goals, and your needs. If you do not have any debt or dependents, a simply term life policy that will cover the cost of your burial may be sufficient. However, if you have any accumulated debt or assets, dependents or a spouse, a policy that will protect your assets, such as a whole life or universal life policy, may be a better choice. Whatever type of policy you choose, it is important to understand coverages, costs, and benefits. In some policies, missing even one payment can cause the policy to be revoked, while others are much more forgiving. Take your time and shop around; it's worth getting the best policy to meet your needs.

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