Life insurance is one of the biggest investments people make for themselves and their families. One of the important decisions to make before investing in life insurance, however, is which life insurance benefits are most appropriate. The different kinds of life insurance benefits include term life benefits, whole life benefits, variable life benefits, universal life benefits, and universal variable life benefits.
The term life insurance policy is, perhaps, the most common on the market. It has the lowest premiums because it is insurance without cash value. Purchasers take out a policy on themselves and designate who receives the life insurance benefits should they die. The life insurance benefits then can help pay for the funeral, the remainder of the mortgage, wage replacement, and bills.
Unlike term life insurance, whole life insurance provides both a death benefit and a cash value benefit, which is like building a savings account for later in life. Whole life policies cost more per month because of this additional benefit. An advantage of this kind of policy is that monthly premiums never increase as long as the policyholders continue to pay the premium. Policyholders can also withdraw from the cash value during their lives and receive dividends.
Another type of cash value life insurance is variable life insurance. The benefits of these policies include death benefits for the beneficiaries and a way to accumulate cash in low-risk and tax-free investments. Unlike term life insurance policies, the death benefits from variable policies vary depending on the returns on the cash value part of the policy. The downside to the variable life insurance is that the cash value fund, although low-risk, is not guaranteed.
The last main type of life insurance is universal life insurance. There are two types: universal life insurance and universal variable life insurance. With the former, the policy pays out a death benefit to the beneficiaries and allows the investors more control over what the cash value of the policy is invested in. Policyholders can choose options that vary their monthly premium and they can borrow from the cash value.
Universal variable life insurance pays the typical death benefit. Policyholders have the broadest investment choices for the cash value funds. They can pick from standard investment options such as stocks, bonds, and money markets. As with other universal life insurance policies, the policyholders have more control over the premiums they pay and can withdraw from the cash balance.