As discussed in last week’s article, many people rely on group life insurance from their employer but are finding that the amount of coverage is not adequate for their family needs. To help fill the gap in the coverage that is needed, an individual policy from an insurance company is purchased. Term insurance and whole life insurance were two types of insurances that were mentioned.
To continue, here are the remaining main types of life insurance to consider purchasing to attain an adequate amount of coverage for your family:
VARIABLE UNIVERSAL LIFE
Variable Universal Life insurance is another type of permanent life insurance. The big difference between this type and other permanent insurance plans is that Variable Universal Life insurance has cash value but is does not pay a fixed or guaranteed rate of return. The cash value is invested in variable sub-accounts within the life insurance policy. These sub-accounts include funds like stocks, bonds, cash and real estate. The policy owner can choose which sub-accounts the cash value is invested in.
Both the amount of cash value in the policy and the death benefit will rise and fall based on the performance of the sub-accounts. If the sub-account values fall below a certain level, then you will have to make an additional deposit of premium in order to keep the policy in force.
Variable Universal Life plans typically do not allow loans or withdrawals on the cash value. However, you can surrender the cash value which may be subject to surrender charges.
UNIVERSAL LIFE INSURANCE
Universal Life insurance is another type of permanent life insurance. It is designed to provide lifetime coverage as the other permanent plans. Unlike the other permanent plans, universal life insurance premiums are flexible and may allow you to raise or lower the premium or benefit amount throughout the life of the policy.
Universal life insurance plan has a cash value account. The cash value grows at a rate determined by the insurance company, but it is usually guaranteed to never drop below a certain rate.
Universal life insurance plans can be surrendered for its cash value as well as allow for loans or withdrawals to be taken on the cash value. Withdrawals and surrenders are subject to surrender charges.
INDEX UNIVERSAL LIFE INSURANCE
Index Universal Life insurance is a newer type of permanent life insurance. Like the Universal Life plan, premiums for the Index Universal Life plan are flexible. Within limits, you can decrease your premium or skip a payment. However, if you skip premium payments and do not have enough cash value to cover the costs of insurance, your policy could lapse, meaning your policy is no longer in force and no death benefit will be paid out to your beneficiary if the unexpected happens.
The cash value in the Index Universal Life plan shares a relationship with the stock market index. The cash value is not directly invested in the stock market, but it mirrors the activity of the stock market. If the stock market goes up, you get some of the upside as well. The favorable aspect of this plan is that your exposure to the downside of the market is minimized.
With the many different types of life insurance plans, it is important to understand the differences and the benefits of each type. The type of life insurance as well as the amount of coverage is based on you and your family’s needs and goals. One of the main reasons for life insurance is to protect your family against financial devastation if the unexpected should happen.
In recent years, another purpose for life insurance has developed. Americans are capitalizing on the living benefits that life insurance provide, such as college tuition, funding business endeavors, and creating an additional income stream during retirement. With that, it is crucial that you review your current coverage and determine if what you have in place is sufficient to protect your family as well as adequate to assist with financial goals while you are living.
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