05 Mar Life Insurance Policies Explained
Figuring out life insurance policies can seem complex, if not downright daunting. With so many policies, such as term life, whole life, universal, variable life insurance, and more, it’s no wonder many of us feel perplexed by life insurance policies. Not to worry; Credit Boost has put together a guide on how life insurance and policies — the heart of life insurance — work
Life insurance covers you and your family for a certain amount of time. It can be term (for a specified amount of time, like 20 years) or permanent, which covers you until you die. Both types pay out a benefit if you die, lose your job, or become disabled, though this depends on the terms of your policy.
In this post, we navigate through life insurance policies: how they work and how to choose the best coverage for your specific needs. The coverage you choose is one of the factors that influence your premium.
Term Life Insurance
Term life insurance provides coverage for a certain time, or term. Usually, this ranges from 10 to 30 years, but it can be for as little as one year or less and as long as 50 years or more. There are various types of term life insurance, such as variable term and return of premium (RoP), but we’ll get to that later.
Term life insurance is for people who would like coverage for a certain term. It offers the highest payout for the lowest cost. It’s ideal for people with growing families who only need life insurance until their children are self-sufficient or people with volatile careers (freelancers or self-employed people, for instance).
Types of Term Life Insurance
There are seven types of term life insurance:
- Level term: Provides a fixed benefit throughout the policy term with fixed premiums
- Increasing term coverage: This increases your payout over the years to combat inflation
- Decreasing term coverage: Payout and premium decrease over time, usually used for mortgages
- Renewable term: The policy can be renewed after it expires
- Covertible term: The policy can be converted into whole life insurance
- Return of premium (RoP): Returns your premium (sometimes with interest) after you’ve paid it
The policy you choose depends on what you need and your circumstances. If in doubt, speak to one of our life insurance advisors.
Permanent Insurance
Permanent life insurance covers you for the entirety of your life. Like term life insurance, it offers a death benefit but can be more of an investment. Some policies offer a cash component, where you can withdraw from a kind of savings account
Look at the different types of whole life insurance to see why. There are three main types of Permanent life insurance:
Whole Life Insurance
Under whole life insurance, your premiums remain the same throughout your policy.
Universal Life Insurance
Universal life insurance premiums and policies are changeable. Usually, these policies offer the option of adding a cash benefit to your death benefit. The cash benefit grows based on interest rates and investment performance.
Variable Life Insurance
Under variable life insurance, your cash benefit is invested into subaccounts that operate similarly to mutual funds. The cash value’s growth and performance depend on the subaccounts’ performance. Variable life insurance is best for people with high risk tolerance.
What Will You Choose?
All in all, the best policy for you wholly depends on your risk tolerance, how long you need life insurance, and whether you would like a death benefit. If you would like assistance choosing a life insurance policy, enlist Credit Boost and contact us today. We would love to be of service.