LIFE INSURANCE
Term, Whole and Universal life insurance
Truthfully, most people outlive their term life policies. And that’s a good thing, because most companies offer only up to 30-year terms. Since many people buy term life insurance before reaching middle age, they’re likely to outlive the term of their policy.
There are two common types of term life: level and non-level.
- Level term life insurance
May be best for people who want the same costs and benefits over time
With a level term policy, you get the same coverage for the same price throughout the length of your term. Your premiums will never increase, and your death benefits will never decrease.
- Non-level term life insurance
May be best for mortgage protection, decreasing coverage needs
With non-level term, your life insurance policy changes steadily over time in one of two ways: either your premiums will go up, or your payout will decrease over time. One example? Mortgage insurance. This type of policy pays the lender the remainder of your mortgage, which decreases as you make your monthly loan payments.
Because the value of a non-level policy decreases over time, you might expect this type of life insurance to cost less. Unfortunately, the price usually remains about the same, so most people opt for level term.
- Whole life insurance
May be best for people who want to lock in a rate for life, then leave an inheritance
Whole life has an appropriate name: it covers you for your whole life, provided you continue paying your premiums. Meanwhile, your cash value collects in a low-interest account.
If you’re looking for life insurance plus a savings account, this type of life insurance could help you check both boxes. Your cash value will slowly grow, and your beneficiaries will receive a payout whether you live to 50 or 150. If that sounds good, check out the top 10 whole life insurance companies.
If you’re looking for life insurance plus an investment vehicle, however, whole life probably won’t make the cut. You could invest in almost anything else and earn a higher rate of return. So let’s look at variable life insurance instead.
- Universal life insurance
May be best for people who want to change their policy on the fly
Like variable and whole life, universal life is permanent life insurance, but it differs in two main ways.
First, you can decide how much of your premium goes toward funding your death benefit and how much goes into your cash value account. You can even choose to pay a larger or smaller premium (within limits). Keep in mind, however, the less you pay toward your death benefit, the lower the payout your beneficiaries might receive.
Another important difference between a universal life insurance policy and other forms of life insurance? Universal policies have a maturity (or expiration) date, usually when you reach age 95, 100, or 121. When your policy matures, you receive a lump sum, typically equivalent to your cash amount, and your life insurance coverage ends.
- Indexed universal life
May be best for someone interested in flexibility and possibly benefiting from market gains
Indexed universal life insurance is a type of universal life insurance that allows the policy owner to choose to invest the policy’s cash value. The insurance company offers one or more investment options designed to match the growth rate of a well-known index, such as the S&P 500 or NASDAQ 100. That means you can grow your cash value faster without knowing a lot about the stock market.