What Is Life Insurance? | Life Insurance Education


Permanent life insurance, on the other hand, offers:

  • Lifelong coverage and a death benefit, regardless of when you pass away

  • A policy that builds a cash value over time, which grows tax-deferred

  • Access to the cash value during your lifetime, serving as a savings portion

Whole life, universal life, and variable life insurance are the three most common types of permanent life insurance. Each type offers different benefits and features to policyholders.

Whole Life Insurance Unveiled

Whole life insurance, as the name suggests, provides coverage for your entire lifetime. It has fixed premiums, which means you’ll pay the same amount throughout the policy term. This makes your future financial commitment predictable.

One distinctive feature of whole life insurance is its guaranteed savings portion. The cash value grows at a fixed rate of interest, ensuring a guaranteed saving component. You also have the option to use dividends to purchase additional coverage or reinvest them into the policy’s cash value.

Universal Life Insurance Explained

Universal life insurance, unlike whole life insurance, offers flexible premiums. This means you can adjust your payment amounts and intervals based on your financial situation. If your cash value is sufficient to cover the policy costs, you can even lower or temporarily stop paying premiums.

Another unique feature of universal life insurance is the ability to adjust the policy’s death benefit. However, changing the death benefit could result in higher premiums and may require proof of insurability.

Variable Life Insurance Demystified

Variable life insurance offers a unique feature: investment options. This policy allows you to invest in subaccounts, which can include various options like stocks, bonds, or a mix of both. This means the cash value and death benefits can fluctuate with market changes.

Policyholders can switch funds between these investment options without triggering tax consequences. This flexibility, coupled with the potential for greater returns, makes variable life insurance an attractive option for those comfortable with higher risk.

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