There are two main types of life insurance: term and permanent. Term life insurance provides coverage for a set period of time, but does not accumulate a surrender value that you can use later to pay bills. Permanent life insurance, on the other hand, allows you to accumulate a cash surrender value over time, which you can access later to pay debts or provide for your family after your death. As you read these articles, you’ll learn more about each type of life insurance and how it can help you or your family if you ever need it.
Universal Life Insurance
This type of life insurance allows you to spend the proceeds of your policy tax-free, unlike whole life insurance. Universal life insurance policies work in two ways: cash surrender value and term. The cash surrender value account provides you with a benefit potential while paying a death benefit when you die. Time value insurance only pays a benefit if you die within a certain period of time, usually 10 or 20 years; everything else is added to your surrender value account.
Whole life insurance
This is life insurance you take out on yourself. It provides for a lump sum payment in the event of death and also includes a savings element where interest can be earned over time on premiums paid. These plans usually include inflation protection to meet rising health and other costs.
Term life insurance
The least expensive type of life insurance, term life insurance is also known as pure term life insurance. This policy does exactly what it is supposed to do: it provides coverage for a set period of time (the term) and pays a death benefit if you die during that period. When you die, payments on your policy stop; there is no surrender value to pass on to anyone.
Variable universal life insurance
This type of policy is similar to universal life insurance. However, variable universal life insurance is more flexible. The owner can choose a lower premium for an investment-based approach or a higher premium for an insured interest rate-based approach. He also has more control over interest rates, dividends and expenses than with other types of policies. One disadvantage is that if you borrow against your policy, you will have to repay both interest and principal each year.
Modified Equity Contract (MEC).
An MEC is a form of permanent life insurance that combines term life insurance with a savings plan. Term life insurance provides a death benefit if you die during the period covered by your policy. If you live beyond this period, the policy lapses and the death benefit ceases. The EMV provides surrender values, which are funds you can use to cover funeral expenses or help support your dependents if something happens to you.
Cost-of-living insurance supplement (COLA).
Inflation protection is available to those who can afford to purchase term life insurance with a cost-of-living adjustment rider. However, if your income is low, you may not be eligible for these policies and will have to explore other options. Also called a cost-of-living guarantee or annual increase clause, the cost-of-living guarantee increases your policy coverage without you having to prove your insurability again.
