There are two major types of Life Insurance:
Cash Value Life Insurance
Cash Value Life Insurance policies are called for the ability to “cash out” or receive money from your Life Insurance policy. Funds can be obtained by cashing out, or you can borrow money against the policy. Both will reduce the pay-out if amount is not paid back at the time of death, unless you only borrow or cash-out on the interest only. Below are the most popular types of Cash Value Life Insurance:
Whole Life Policy
Pros –
- The monthly premiums are fixed
- Guaranteed a minimum cash-value amount.
Cons –
Variable Life Policy –
Pros –
- This policy allows you to direct where the cash value is to be invested into stocks, bonds, and more.
- The monthly premiums are fixed and do not change.
- You choose where your your money is invested.
Cons –
- You’re at risk, as if you’re investing in the stock market.
- Universal Life Policies
Pros –
- Flexible policy that allows you to change amount of coverage easily.
- Flexible policy that allows you to change your monthly premium amount.
- Funds are invested into a tax-deffered account to earn interest.
- Protection is guaranteed for life as long as you pay your monthly premiums on time.
Cons –
- The cost can be prohibitive over a long period of time.
- You may need to hold this policy for many years to be profitable.
Term Life Insurance
This policy type offers protection from 1-30 years, (decided at writing of policy). This policy type protects you and your family for only a certain amount of time. If the covered person dies within the specified time frame, then the policy pays out. If the person is at the end of the policy or has canceled the policy, then the policy will NOT pay out. When the “term” expires, you’ll be able to renew your policy (usually with higher premiums.
Term Life Policies
Pros –
- Cash Value Life Insurance policies allows you to borrow or withdrawal funds.
- Offers Life Insurance for a specific amount of time, usually between 1 – 30 years.
- The policy is renewable (see Cons).
Cons –
- Premiums increase as you age.
- The policy generally doesn’t offer cash value or paid-up insurance.
- If you die after the term policy expires, the policy does not pay out.
- The policy is renewable, with a substantial increase in premiums.
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