Life insurance can be a difficult topic. The subject is complicated, there are numerous options, and it’s an uncomfortable feeling to plan for the end of life. In addition, while most people recognize the value of life insurance, many are unsure about which type is best for them. The agents at TSL Insurance in Lafayette are here to help you better understand all of options of life insurance.
There are three common types of life insurance: whole life insurance, term life insurance, and universal life insurance. While there are many variations, we will look at the key points and differences of each of the common types.
Whole Life Insurance
Whole life insurance is a permanent life insurance policy guaranteed to remain effective for the insured’s life as long as premiums are paid. When you first apply for coverage, you agree to a contract. The insurance company promises to pay your beneficiary a certain amount of money – called a death benefit – when you pass. You’ll choose your coverage amount, and your premium will be calculated based on your age, gender, and health. Your policy will stay in effect, and your premiums will remain the same regardless of health or age changes.
For example, let’s say you buy a whole life insurance policy at age 35. When you purchase the policy, the premiums will be locked in for the policy’s life as long as you pay them. They will be higher than the premiums of a term life insurance policy (which we’ll discuss next) because your entire life is built into the calculation. Over time, the premiums you pay into the policy start to generate cash value, which can be used under certain conditions. You can withdraw the cash value in the form of a loan, or you can use it to cover your insurance premiums. The policyholder must repay all loans before you pass, or they will be deducted from the policy’s death benefit.
Term Life Insurance
Term life insurance works by ensuring financial protection for your family over a specific period — the term — before expiring. If you pass away before the term ends, your beneficiary receives a death benefit, a tax-free lump sum of money that can be used for funeral costs, to pay bills, or for any other purpose.
Terms usually last from 10 to 30 years. You pay a monthly or annual premium, determined using your policy details and your health and demographic information, to keep the policy active. Unlike whole insurance, term life policies do expire once the term is up. Term life insurance is more affordable because you can choose your term length and the coverage amount. This pricing structure means you pay only for the insurance you need and only for as long as you need it.
Universal Life Insurance
Universal life is an adjustable type of permanent life insurance that allows you to make changes to two main parts of the policy: the premium and the death benefit, which affects the policy’s cash value. Thus, universal life combines the pure insurance elements of term life with the savings account features of whole life insurance.
From the first day, the policy is in effect. Universal life provides a death benefit to help protect your family’s financial security. The cash value can provide various advantages while you’re still alive. Similar to whole life insurance, you can borrow money against it, use it to pay premiums, or even surrender your policy for cash to live on in retirement. It can also serve as a powerful estate planning tool. However, the death benefit in a universal life insurance policy is adjustable, and cash value growth isn’t guaranteed like with a whole life policy. Instead, they’re affected by the premiums that you decide to pay into the policy.
Now that you know the common types of life insurance, call TSL to discuss your options. An agent can help you decide the right option for you and your family. Help ease your mind with coverage that you and your family can depend on.