When you’re searching for the best life insurance policy for you, one of the most important considerations is the type of insurance you’re purchasing. While the differences between these policies aren’t always explained very well, they offer different coverage, different premiums, and different exclusions and so should influence what you purchase.
Life insurance falls into 4 main categories though it can often look like there are more because different companies will title them differently. Getting familiar with each type will help you know what sort of policy you’re looking and which one will be the best life insurance policy for you.
Term Life Insurance Policy
Term insurance will pay your beneficiaries a certain, specified amount of money in case of your death in exchange for a regular premium. These policies generally have a specified length of coverage, or term, after which they are no longer valid. Most of these policies payout in case of death only and not if you contract a serious illness or are in an accident that seriously prevents you from returning to active work.
Term life can be the best insurance policy for you if you are looking for the lowest personal investment or premium. On the other hand, if you do not die during the specified term of coverage, you receive nothing in spite of your investment.
Whole Life Insurance Policy
Whole life does not have a fixed term of coverage and so is considered permanent insurance. In addition, this type of insurance policy has a cash value on top of the specified death benefit, and you can access that cash value at any time. However, anytime you use money from the cash value of your policy, it is considered a loan and your beneficiaries may not receive the entire death benefit if you die before paying it back.
While whole insurance policies usually have significantly higher premiums than term life policies, the greater flexibility and permanence of the insurance can outweigh this downside. If you can spend a little more on premiums, a whole life policy may be the best life insurance for you.
Universal Life Insurance Policy
Universal life offers some similar benefits but more flexibility than whole life insurance. Most universal policies offer flexible premiums and distinguish between what you’re paying for the death benefit and cash value of the policy (which much whole life policies do not offer).
If you want the benefits of whole life but know you cannot afford the premiums at this point, a universal policy can allow you to have a permanent insurance policy with some cash value and lower premiums.
Endowment Life Insurance Policy
Endowment insurance policies build up a cash value until the total amount of the policy equals the death benefit. At this time, the policy reaches its endowment age and pays out whether you have died or not after a specific amount of time or when you reach a certain age.
If you cannot afford high premiums, this is not the best life insurance policy for you. However, if you want some guaranteed income provided you live past a certain age check out this type of life insurance.
No matter which type of life insurance you choose, you should know what you’re getting. That way, you can ensure that the choice you make is for the best life insurance policy you can find.