Life insurance is a vital benefit to anyone who depends on you financially. After you die, it gives cash to your family, which can help them pay bills, living expenses, mortgages, tuition, etc. Life insurance is also not taxable. Whether you are married, a parent, caring for an older parent or have substantial assets, you will find that most people need life insurance to protect their loved ones and cover their final burial expenses.
Types of Insurance
There are many kinds of life insurance, but there are two main categories
- term insurance
- permanent insurance.
Term insurance is less expensive and is usually selected for a limited time period. It only pays off if you die within that time period, and is often selected when you have a need for coverage that will disappear in the future, such as a mortgage you plan to pay off or college tuition. There is usually an age limit on term insurance.
Permanent insurance provides lifelong protection and is a financial asset. If all premium are paid, and there are no withdrawals, the full amount of the policy will be paid whenever you die.
There are four main types.
- whole life insurance
- universal insurance
- variable life insurance
- variable universal insurance
The most common kind of permanent insurance is whole life insurance. When you purchase your policy, the amount you pay every year ( your premium) and the amount paid out when you die (the death benefit) are fixed and stay the same for the life of the policy. There is also a guaranteed cash value for your payments, which means you can borrow against your policy over the years.
With universal life, the cash value depends on interest rates.
With these types of insurance, the cash value of policies is not guaranteed, but you can usually set a minimum death benefit. Their value is tied to the performance of the investment options you choose to invest in. Be sure to read over the existing prospectus on these policies to see how the investments are performing. The cash value will change as the stock market changes.