The Types Of Life Insurance Policies

Written By: Rodney Daniel Bolton on September 2, 2010 No Comment

A life insurance policy protects your survivors from financial uncertainty after your demise. It is a good safety device to have. But, with the number of life insurance policies available in the market, it is not easy to make the optimal choice.

The two broad categories of life insurance are term and permanent life insurance. If you are looking primarily for death benefit protection than a term policy might be appropriate. It typically provides a death benefit at lower cost than other types of insurance. Term life insurance is bought for a term, a period of time, and the insured pays a fixed or unfixed premium. There is no build up of any cash value. It does not function as an asset of the insured. The premiums can increase over time to become overly expensive for the elderly. A level term policy keeps the annual premium fixed for period of time. A term insurance with a declining balance is often used for mortgage insurance as it can be written to match the amortization of the mortgage principal. The premium will remain fixed over the term, while the face value declines. Once the mortgage is paid off, the policy expires. It may be convertible to permanent insurance. When buying such insurance, you may want to look for a policy renewable up to the age of seventy years and then convertible to permanent without a medical exam.

With permanent life insurance there is cover for the life of the person and this will build cash value. The insured will have access to the cash value during the policy period. The holder of the policy can borrow against it or withdraw part of the cash value without losing the death benefit, which the insurance company will pay to the named beneficiary upon the death of the insured. Premiums are usually higher than they are for term insurance as cash value is built up in this policy. If provision of benefits to your survivors is your primary goal, choose permanent insurance. Whole life insurance, variable life insurance and universal life insurance are broad categories of types of insurance within the permanent insurance category.

Whole life insurance combines permanent protection with a savings component. As long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate. A portion of the premium accrues cash value on a predetermined schedule with an exact cash value on each policy anniversary. Future policy values can change should there be a loan taken out or there is any withdrawal. This will decrease the cash value and the death benefit.

In universal life insurance there is a potential for higher earnings on the savings portion. These policies can have flexible premiums and cash values. There is typically a fixed interest rate on the cash value. This rate is tied to stock market performance, but will not fall under a fixed minimum rate. The drawbacks include higher fees and some interest rate changeability. The premiums can increase if interest rates fall.

A variable life insurance allows the cash value to be invested according to a choice amongst investment options. The performance of the investments will lead to a rise or fall in the policy. Also, stock market may lead to rise in premiums. A universal variable life insurance policy offers even more risks and rewards for those with the budget to afford them.

The upside and downsides of the various types of policies should be carefully considered. If you do not take the risk and costs into account properly, it can lead to a lapse in your policy. Changes in your personal situation can mean a change in your insurance profile.

Therefore, it will be crucial for you to search through different places where you can find these sorts of quotes. You do not want to leave your family hanging if something happens to you. Do it with the thought of your friends, family, and pocket book in mind. life insurance quotes