Whole Life Insurance
Whole life or permanent insurance provides coverage for your entire life or until age 100. It combines protection and savings. Your premium pays for the costs of insurance and part of it goes to build up cash values as savings. The cash value can grow up to the amount of sum insured. It is a participating plan and may earn dividends as non-guaranteed returns.
So whole life insurance provides death benefits because of insurance and living benefits because of cash values and dividends. The amount of death benefits is the sum insured plus any accumulated cash values and dividends. Living benefits can be obtained while you are alive.
The living benefits can be used to fund a future financial need such as college education of children or retirement. When you get all such benefits, the policy terminates and you are no longer insured.
The policy endows or matures normally at age 100. Some plans mature earlier. You get the cash value equal to the face amount plus accumulated dividends when you outlive your policy. Click here to see if whole life insurance is a good investment.
It is not hard to remember what are the different types of life insurance policies with this W of the WET.
Endowment Policies
Endowment polices provides coverage for a limited period. They grow cash values very fast. They can build a future fund for a definite purpose - retirement, college education of a child or other financial need. They also give protection in the form of death benefit.
An endowment policy pays at a given time, say in 20 years, or if death should occur before the given date. It also provides annual dividends. The death benefit is the sum insured plus cash values and dividends. The policy ceases upon endowment or death of the insured.
The cash value of a policy builds up because of level premium - the premium is the same all throughout the life of the policy. Whole life and endowment policies have level premium.
Term Life Policies
What are the different types of life insurance policies? Term insurance provides "pure" life insurance coverage for a specific period of time. In case of death within that term period, your beneficiary receives the death benefit. If you live past the term period, your coverage ends, and you get nothing back.
A term policy provides the lowest cost insurance protection with no savings. There is no cash value or dividends. It has a term ranging from 1 year to 10 years or more. You can renew the policy for a new term regardless of health or insurability, but at a higher premium level. This makes your term policy much more costly as you get older.
A term policy is right for you if you cannot afford a whole life plan now. You can also use term policy for loan or mortgage because it provides just sufficient life coverage to pay off the outstanding balance of the loan or mortgage.
You have the option to convert your coverage to permanent insurance regardless of your health status at the time of conversion.
Term versus whole life insurance? Know more the difference and when to have one here.
So what are the different types of life insurance policies? Simply WET. There are also variable universal life insurance policies but let's talk about that here.
If you are looking for the right policy for you, I can help you find the right one. Please leave comments or post questions and I'll try to respond as soon as I can. Or you may get answers from other readers to this page.
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