Life Insurance:What are the Principal Types?

There are two main types of life insurance – term and permanent . Term life insurance offers coverage for a specific period of time, but doesn’t build any cash value that can be used later on in your life to cover the bills. Permanent life insurance, on the other hand, allows you to build up cash value over time, which you can access in the future to pay off debts or help support your family after you’re gone. As you read through these articles, find out more about each type of life insurance and how they can benefit you or your family in your time of need.

Universal Life

This type of life insurance allows you to spend your policy funds tax-free, unlike with a whole life policy. Universal life policies work in two ways: cash value and term. The cash value account gives you earning potential, while paying out a death benefit if you die. Term insurance only pays out if you die within a certain amount of time—usually 10 or 20 years; anything after that is added to your cash value account.

Whole Life

This is life insurance that you buy for yourself. It pays out upon your death, and it also includes a savings element in which interest can be earned on premiums that you pay over time. These plans usually have built-in inflation protection to keep up with rising costs in health care and other areas.

Term Life

The least expensive type of life insurance, term life is also known as pure term. The policy does exactly what it sounds like: It provides coverage for a fixed period (the term) and pays a death benefit if you die during that period. When you die, payments from your policy stop; there’s no cash value to pass on to anyone.

Variable Universal Life

This type of policy is similar to universal life. However, variable universal life has greater flexibility. The owner can choose a lower premium for an investment-oriented approach or a higher premium for an insured-interest approach. They also have more control over interest rates, dividends and expenses than other types of policies do. One drawback is that if you take out loans on your policy, you’ll have to pay back both interest and principle each year.

Modified Endowment Contract (MEC)

A MEC is a form of permanent life insurance that combines term life insurance with a savings plan. Term life insurance provides a death benefit if you die during the period covered by your policy. If you live past that term, your policy ends and your death benefit disappears. The MEC offers cash values—cash you can use to cover funeral costs or help provide for loved ones in case something happens to you.

Cost of Living Assurance Rider (COLA)

Inflation protection is possible for those who can afford to buy term life insurance with a Cost-of-Living Adjustment rider. If your income is low, however, you probably won’t qualify for these policies and will need to look into other options. Also called a Cost-of-Living Guarantee or an Annual Increase Rider, COLA increases your policy coverage without causing you to have to prove insurability again.



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