WHAT IS TERM LIFE INSURANCE
The basics:
Policy length: Common level term periods include 5, 10, 15, 20 or 30 years
Cash value: No
Premiums: Level, annual renewable or decreasing
Death benefit: Fixed
How it works:
Term Life Insurance has a specific end date for the level term period, when rates stay the same. After this period you can renew the policy, but at higher rates each year. Choices of coverage lengths are generally 5, 10, 15, 25 or 30 years. It’s the cheapest way to buy life insurance because you’re buying only insurance coverage and not paying for cash valuel life insueance.
Who is it for: Term life insurance is ideal for people who want life insurance coverage for a specific debt or situation.
For example, some people buy it to cover their working years as income replacement for their family in case they pass away. Some people buy term life to cover the years of a mortgage or other large debt.
Downside: If you still need coverage after the level term period expires, you could find the renewal rates to be unaffordable. And buying a new life insurance policy could be extremely pricey based on your age and any health conditions you’ve developed.
WHAT IS WHOLE LIFE
Whole Life Insurance
The basics:
Policy length: Permanent
Cash value: Yes
Premiums: Level
Death benefit: Fixed
How it works: Whole Life Insurance can provide coverage for the duration of your life. An account within the policy builds cash value over time by using part of your premium payment and adding interest. A policy will have built-in guarantees that the premium will not increase, the death benefit remains the same, and the cash value will earn a fixed rate of return.
Who is it for: Whole life is suited for people who want lifelong coverage and are willing to pay for the guarantees provided by the policy.
Downside: Because of the guaranteed features, whole life insurance is one of the more expensive ways to buy life insurance.
WHAT IS UNIVERSAL LIFE INSURANCE
The basics:
Policy length: Permanent
Get Face Amount & Cash value: Yes
Coverage: 120 years
Premiums: Might be flexible
Death benefit: Might be flexible
Mutual Funds
How it works: Universal Life Insurance (UL) can be hard to understand because there are a few varieties and with very different features. Universal life insurance can be cheaper than whole life insurance because it generally doesn’t offer the same guarantees.
With some forms of universal life you can vary premium payments amounts and rejigger the death benefit amount, within certain limits. UL policies often have a cash value component.
Who is it for: Universal life insurance can be good for someone looking for lifelong coverage. Some varieties of UL are suited for people who want to tie their cash value gains to market performance (indexed and variable universal life insurance).
Downsides: If cash value is your main interest, not all UL policies guarantee you’ll make gains. And if you’re interested in flexible premiums payments, you have to stay on top of your policy’s status to make sure that the policy’s fees and charges don’t deplete your cash value and cause it to lapse. Understand what’s guaranteed within a UL policy and what isn’t.
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WHAT IS INDEX UNIVERSAL LIFE INSUEANCE (IUL)
The basics:
Policy length: Permanent
Get Face Amount & Cash value: Yes
Coverage: 120 years
Premiums: Flexible
Death benefit: Flexible
Safety of Principal: Gain without Losses
How it works: IUL Insurance policies can help you to build wealth while leaving behind a death benefit for your loved ones. These policies put a portion of the policyholder’s premium payments toward annual renewable term life insurance with the remainder added to the cash value of the policy after fees are deducted. On a monthly or annual basis, the cash value is credited with interest based on increases in an equity index.
An indexed universal life insurance policy includes a death benefit, as well as a component that is tied to a stock market index. The cash value of the policy rises or falls, depending on the performance of that index. These policies offer higher potential returns than other forms of life insurance, as well as higher risks and additional fees.
Who is it for: Indexed Universal Life insurance policy can provide a good way to provide for your loved ones, it's typically not an appropriate investment strategy for most people.
Downsides: Indexed universal life (IUL) insurance policies provide greater upside potential, flexibility, and tax-free gains.
This type of life insurance offers permanent coverage as long as premiums are paid.
Some of the drawbacks include caps on returns and no guarantees as to the premium amounts or market returns.
An IUL policy may be canceled if you stop paying premiums.
In general, these policies are best for those with a large up-front investment who are seeking options for a Tax Retirement.
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WHAT IS BURUAL AND FUNERAL INSURANCE
The basics:
Policy length: Permanent
Cash value: Yes, typically
Premiums: Level
Death benefit: Fixed
How it works: You may see this kind of policy called burial, funeral or final expense insurance. No matter the name, it’s usually a small whole life insurance policy that’s intended to pay only for funeral costs and other final expenses. Funeral or Burial is often offered as a policy that you can’t be turned down for and that doesn’t require a medical exam.
Who is it for: These types of policies are generally for people in poor health who don’t have other life insurance options and who need insurance for funeral expenses.
Downsides: Burial insurance policies are expensive, based on the amount of coverage you get for your money.
Burial insurance policies also have a safeguard for the life insurance company: Your beneficiaries won’t get the full death benefit if you pass away within two or three years after buying the policy. Check the policy’s timeline for these “graded dealth benefits reserved” Your beneficiaries might receive only a refund of the premiums you paid in, plus some interest.
WHAT IS MORTGAGE LIFE INSURANCE
The basics:
Policy length: Life of the mortgage
Cash value: No
Premiums: May fluctuate
Death benefit: Declining death benefit as you pay down mortgage
How it works: Known as PMI or Mortgage Insurance is designed to cover only the balance of a mortgage and nothing else. This policy type is different from the life insurance types above in two major ways. First, the death benefit is paid to the mortgage lender, not a beneficiary that you choose. Second, the payout is the balance of the mortgage, or partial balance if that’s what you insured.
Who is it for: Mortgage life insurance is intended for people who are primarily concerned about their family being burdened by the mortgage if they passed away. It can also be appealing to someone who doesn’t want to take a medical exam to get life insurance.
Downside: This type of policy won’t provide financial flexibility for your family.
If you’re looking for life insurance to cover a mortgage or other debts, you’re better off with term life insurance. You can choose the term length and amount, and provide more than just mortgage money to your family. Your family can use a payout for any purpose. They may decide to use the money elsewhere.
To understand more about PRO AND CON about Mortgage Life Insurance Protection.
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