Life insurance is one of the most effective ways to protect your loved ones from financial trouble if you suddenly pass away. But what type of policy is best for you and your budget? There are several general categories of life insurance. These life insurance policies can be evaluated based on the cost of monthly premiums. Some are fixed premium policies—the premiums do not increase or decrease with time. Others have variable premiums.
Term life insurance covers a specified number of years to replace your income if you die prematurely. The benefits are important: the payout will support your spouse or dependents and pay for critical items such as debt repayment, the cost of education for children, mortgage payments, and other expenses.
These policies are simple, and premiums are kept at a stable, low cost, usually equating to hundreds of dollars a year, depending on the cash benefit value. If you live longer than the term covered by your policy, the policy is no longer valid. However, you may have the option to convert a term life insurance policy to whole life insurance during a set “conversion period” in the policy, which is typically within the first few years, with age restrictions.
Whole life insurance has fixed premiums. The premiums are higher in cost, adding up to sums in the thousands annually rather than a few hundred, as is found with term life insurance. The positive side is that whole life insurance does not expire and will provide a death benefit to your beneficiaries whenever you pass. Whole life insurance has a savings component that allows you to build cash value. The premiums paid accumulate and earn interest in your account, which can be borrowed against in the future.
For those concerned about end-of-life payments but who do not have a larger income, burial insurance can be purchased for a reasonable monthly premium to help cover burial expenses for your family and loved ones. The guaranteed payout is smaller, ranging from $5,000 to $25,000, but you do not need to pass a medical exam to be approved. Depending on the payout, annual premium totals can range from a few hundred to a few thousand dollars.
Moving on from the simple, set-premium life insurance options, universal life insurance is the first of the two central variable premium policies. These policies require more financial knowledge and investment knowledge to perform their best. They offer higher gains for those who know how to use them and have the time and interest to manage them effectively.
This insurance category allows you to adjust your premiums (within reason) and has a cash value account that will grow based on market interest rates. You can make more money off your market-indexed account, but over time, your premiums will be increased to reflect the current price of providing life insurance, affecting profits.
Like universal life, variable life also offers a variable premium option. Variable life is different because it provides a broader sphere of investment options for the cash value in your policy account. Investments come with increased risk and increased earning potential. If you know how to invest, this could help you add considerable cash value to your policy.
With life insurance, there are many options. Let us help answer questions regarding the best coverage for you and your loved ones. In all cases, having the right policy can help to give you peace of mind and care for your loved ones in the case of your untimely demise. Contact our agency to see how we can help you choose the right premium today.