Know More: The Three Main Types of Life Insurance Plans

Unsure of what type of life insurance plan to purchase? Life insurance plans are primarily of three types – term life insurance, whole life insurance, and universal life insurance. Buying the right type of plan is crucial since the policy will need to meet the financial needs of your dependents, while also meeting your financial goals. Here’s all you need to know about the three major types of life insurance. 

Term life insurance: Term life insurance covers you for a specific period of time. At the end of the period, your coverage also ends. These policies are usually offered in 5, 10, 15, 20, and 30-year terms. Unlike whole and universal life insurance, term life insurance has no cash value or savings component. It is just insurance offered for a certain period at an affordable price for a guaranteed death benefit during this period. For example, the annual cost of taking out a 20-year term life insurance for a healthy 43-year-old with a $1,000,000 death benefit comes up to just about $854 for 20 years.

Whole life insurance: Whole life insurance is one of the oldest forms of life insurance. This type of plan guarantees a certain death benefit (provided all premiums have been paid, of course) but it also acts as a savings plan because it has a cash value. This type of policy is essentially two types of financial products rolled up into one. A whole life policy guarantees three things:

– The rate of return on cash

– The premium, which is fixed and locked when you buy the insurance, so that it will never change during the tenure

– A death benefit that is guaranteed for your entire lifetime.

Universal Life Insurance: Universal life insurance is really term insurance with a ‘savings component’. Just like all other life insurance policies, this type of policy comes with the cost of insurance called the premium. However, you have some flexibility since you can choose to cover the premium from the cash value, either in part or completely as per the terms and conditions communicated to you by the insurance firm.  

Remember to really understand the coverage options offered by each type of life insurance plan and check whether the premium payments are something you can afford before you sign on the dotted line.