There are many different types of life insurance available to consumers like you. Some include things like living benefits and cash value accumulation. Some contracts allow you to make withdrawals or loans on the policy.
No matter these variations, the basic benefit that all life insurance policies provide is a death benefit to replace income in the event of your death. This is important, as many households cannot sustain in the death of an income earner.
You may be the primary wage earner, or in a dual-income household. Your unexpected loss can cripple your surviving family, now fully responsible for covering things like mortgage payments, debts, college education, and so forth. This makes finding an appropriate life insurance policy so critical.
Because life insurance is generally tax-advantaged, it can also be a great solution for individuals with legacy or wealth transfer needs. A death benefit can provide your beneficiaries the liquidity to settle estate tax and other responsibilities.
While life insurance is available in many varieties, there are two basic categories: Term Life and Permanent Life.
Term Life Insurance
Term Life Insurance policies provide a death benefit for a certain period of time. If you die within the contract benefit period, then payout is issued to your beneficiaries. If, however, you outlive the period, then benefits are not issued, though you may have an option to renew for another term or convert to a different type of policy.
Term life polices do not include cash value accumulation. Instead they are strictly used for a death benefit. Because of this, term life policies are often some of the least expensive life insurance contracts available.
Permanent Life Insurance
Permanent Life Insurance policies grant total coverage for an insured’s life, so long as contract terms are met and the policy stays in force. Permanent Life Insurance also includes a cash value component that accumulates during the period of coverage.
There are two basic sub-categories of permanent life: Whole Life and Universal Life. The main difference between the two is that whole life is paid with regular payments, while universal offers flexible options for premium payments.
Universal Life Insurance Polices common variations include:
Guaranteed Universal Life (UL-G)
which issues a death benefit even if the cash value account is used up, as long as premium targets are met.
Fixed Indexed Universal Life (FIUL)
which accumulates a cash value at an interest rate based on a specific stock market index, similar to a Fixed Indexed Annuity.
Current Assumption Universal Life (CAUL)
which allocates payments beyond the pure cost of the policy into an investment portfolio, often the carrier’s general investment account.