The choice for whether to choose whole, term life insurance or any other policy doesn’t depend on which policy is best or worst. Each policy has its own place and benefits. So before buying a insurance policy a proper financial analysis of your needs is to be done which would have a far more accurate idea of how much life insurance policies one can afford to spend. One of the best options is to mix and match the various options available which will better fit in one’s needs.
Universal Life Insurance Policy: This universal life insurance policy is based on a term life insurance with a cash component. In such a type of insurance instead of selecting just a specific term and putting 100% towards one’s premium, part of the insurance premium payable will go into cash account. This cash account will earn interest as well as investment. As the policy holder grows older a small portion of premium goes towards the investment and the rest is covered as a higher proportion to risk element. The major advantage is because it has a cash component one can temporarily stop making payments when the cash is strapped out. The disadvantage is that it is quite expensive when compared to a term life policy. Before buying a term life insurance policy one needs to check whether there is guarantee on the premiums on universal life policy without which a person may get disappointed.
Term Life Insurance: A term life insurance policy is purchased for a specific time period which may be 10, 15, 20 years. In this type of insurance there is no cash value so it is the best option for people with young children who want to have life cover in case something happens to them but at a cheap price. There are different kinds of term life insurance policies which include:
Level Term: As the name suggests the premium and death benefit remains in level i.e. remain same each year.
Renewable Term Insurance: If term life insurance is an annual renewable policy then the life cover can be renewed each year without filling a new application. The premium is not fixed and goes up each time the policy is renewed.
Decreasing Term Life Policy: The death benefit decreases each year but the premiums remain the same. The policy would end once death benefit reaches zero.
Increasing Benefits: With this kind of cover the death benefit amount will increase each year and the premiums payable would increase on a yearly basis.
Whole Life Insurance Policies: Whole life insurance policies will get a cover for policy holder against death or disability until the day he/she dies leading to premiums being paid up. The major point of concern in this type of insurance is how the premiums are designed. Like universal life, whole life insurance has a cash value component and in many cases the death benefit and premiums are also fixed.
Variable Universal Life Insurance Policies: The variable universal life insurance policy is similar to universal life with the exception that policy holder doesn’t earn a specific rate of interest in cash value find but the policy holder can invest this portion of policy in different investments like mutual funds. The control for where to invest is in the hands of policy holder giving them certain flexibility in terms of investments but it will also lead to carrying up of more risk.
After analyzing these types of insurance one should take into account different types of quotes with different policy schemes wherein one policy may have lower premiums than another. The premiums would be cheaper if one has no guarantee for the policies. So before buying a policy one needs to read the fine printed policy for all the terms and conditions. If you feel you are getting confused then ask a fully qualified financial planner for advice before buying a policy.
