6 Types Of Life Insurance Policies - Which One Is Best For You?
If you are planning to buy a life insurance policy, the wide range of options that are available can be confusing. Before making a choice, it is important to understand your requirements. Are you looking for a low-cost policy that offers a large death benefit? Or would you prefer to buy an insurance policy that allows you to withdraw money from your accumulated balance when you require it? Here is a brief description of six different types of life insurance policies:
1. Term insurance
This is the simplest form of life insurance and the most economical. You can get a large amount of coverage for a relatively small premium. It is suitable for young individuals who have a family to support. You can buy term insurance cover for periods ranging from ten to 30 years or even more. The premium that you will be required to pay will remain fixed for the period that the policy is in force.
2. Whole life insurance
Unlike term insurance, which is valid for a certain number of years, whole life insurance provides coverage for your entire life. The premium remains the same each year. It is more expensive than term insurance, but you get the advantage of accumulating a cash value against your policy. During the term of the whole life policy, you are permitted to borrow against this cash value. Individuals who have young families to support should not opt for this policy as the death benefit is relatively small for the premium that you pay. But if you want life insurance that you can fall back upon when you need cash, a whole life policy can be the correct choice.
3. Universal life insurance
Universal life insurance is similar to whole life insurance, but the cash value accumulates differently. In universal life insurance, the insurer guarantees a certain interest rate for the cash value. If the insurer’s portfolio earns more than this minimum rate, the excess may be applied to the cash value. The policyholder also has the flexibility to decide how the premium that is paid is allocated between the death benefit and the policy’s cash value. This can be a great advantage as your financial needs may change over the years.
4. Accidental death and dismemberment policyholder
An accidental death and dismemberment policy, which is also referred to as AD&D insurance, can be purchased individually or as an additional cover for your existing life insurance policy. The protection that AD&D provides is very restricted. A payout is made only if death or injury occurs due to an accident. Many times, death because of reasons like illness, drunken driving, or suicide is not covered. If you are planning to buy AD&D insurance, check the policy carefully as there are many exclusions.
5. Survivorship life insurance
Final expense insurance is specifically meant to pay for an individual’s funeral and burial costs. This type of insurance carries a low premium and is usually available even for older people. The policy names a beneficiary who will be responsible for using the payout to meet the expenses related to the insured’s person’s death.
Which policy should you buy?
If you are single and do not have any dependents, you may not need a life insurance policy at all. But for most people, some form of insurance is necessary. A term policy can be the most economical option. However, it may not meet your needs, especially if you are looking for an option that provides a financial benefit in a certain number of years.
If that is the case, it is better to buy a whole life or universal life insurance policy. Regardless of the type of insurance that you select, remember to study the policy document carefully. It is important that you understand the terms and conditions and financial implications of the insurance policy. Insurance contracts can be complicated and it may be a good idea to enlist the help of a professional financial adviser.