Life insurance is intended to protect survivors from drastic financial hardship in the event of a death. This type of insurance can be particularly helpful for individuals who must provide for a spouse or a family. Because not all people have the same financial needs, several kinds of life insurance are available. The most common types of life insurance are term, whole, universal and variable life coverage.
Term Life Insurance:
Term life insurance is a basic type of insurance that covers an individual for a set term. This term can range from one year to 10 years or more. The coverage applies during the selected term only. Those who purchase term life insurance can select the amount of coverage.
The coverage amount is paid directly to beneficiaries if the individual dies during the coverage term. According to the financial website Yahoo Finance, term life insurance is often the least expensive option for people who are younger than 50 years old.
Whole Life Insurance:
Instead of covering an individual for only a set period, whole life insurance provides continuous coverage for the person’s whole life. As with term life insurance, different levels of whole life insurance are available depending on the predicted financial needs of the individual. In addition to covering a person for the full extend of their life, whole life insurance has the advantage of building value over time. Many insurance companies invest a percentage of the insurance payments made by the individual. After several years, these invested payments can build to sizable amounts, which can be borrowed by the individual as a low-interest loan.
Universal Life Insurance:
Universal life insurance covers a person for the extent of her life, similar to whole life insurance. With universal life insurance, however, the policy includes flexible investment options. The insurance holder can pay into the policy beyond the standard monthly fee. Any extra money that is paid into the program is invested by the insurance company. Unlike other types of investments, universal life insurance plans are often guaranteed to return a certain percentage of value.
Once the amount of investment money in a universal life insurance policy has been built up, the money can be borrowed or used toward future insurance fees. For instance, if an individual paid more than the required minimum into a universal life policy for several years and then became unemployed, the extra invested money could be applied to keep the coverage active until another job was found. This flexible savings feature makes universal life insurance a good option for people who wish to build an emergency savings fund while being covered against early death.
Variable Life Insurance:
Like whole life insurance and universal life insurance, variable life insurance includes an investment option that allows policy holders to earn interest on payments made in excess of the minimum fee. Unlike other types of life insurance, however, variable life insurance gives individuals the option to select exactly where this money is invested. Policy holders can select stocks, bonds or money market accounts that meet their personal financial goals. This variety of options is intended for investors who wish to have life coverage while earning high amounts of interest.
Because the investment portion of a variable life insurance policy is self-directed, returns are usually not guaranteed. On the other hand, if good investments are selected, the total insurance payout when the policy holder dies can be significantly more than the original coverage amount.