Life insurance is a tool designed to provide one in confidence that in case of death one’s family will get a compensation which is called death benefit. Death benefit amount is defined upon terms of policy and it consequently defines payment amount.
However, death benefit is not the only service one can get from life insurance, you can also get cash value and below this subject is going to be disclosed in details.
There are 3 main types of life insurance plans:
Term Life Insurance
It is called term because this insurance is eligible for a specified period of time – up to 30 years. Once this period comes to an end you can no longer apply for death benefit. It i the most simple and cheap type of life insurance as all you have to do is specify amount of money your relatives will get in case of your death and then you only need to make monthly payments accurately.
Whole Life Insurance
This type of life insurance was designed to provide more sophisticated and enhanced insurance service. Your life insurance is eligible till the moment of your death and it gains cash value.
The death benefit value and returns (dividends) remain constant up to the moment you pay insurance fee. The only disadvantage of this type of life insurance is the fact it very expensive if comparing with term life insurance. You can get more information on difference between these types of life insurance.
Universal Life Insurance
This is the most complicated tool with various options. And there are three of them:
If you want your family to get death benefit upon your death this is a good option. It demands accurate payment – once you do not pay you may lose the death benefit. There are different conditions for this type of life insurance – it can either have or not have cash value.
You can set up the ge upon you want to get the death benefit and you only have to pay the bill on time otherwise you won’t get the payment.
This kind of insurance can make you really rich as money you pay for insurance can be used by as an investment. And if investment is successful you can earn great sum of money and get it on your account after you pay all kinds of fees.
However, you can also lose. The main disadvantage of this policy is high risk of failure. However, you can set up and change both your death benefit and insurance fees as well within the specified frames during the contract lasts.
This type of insurance is all about cash value and investment, too. There are different offers for indexed universal life insurance, however, mainly conditions share common features.
Usually your cash value is tied to some kind of index specified in the contract (like D. Jones or NASDAQ – no matter what). And your cash flow strongly depends on the status of index it tied to. For example it grows on 20% while the stated share of your funds linked to this index makes 50%, you will get 10% cash value on your account.
You can take this money or use as a payment to insurance company. That means you can skip payments and still possess insurance policy. The good thing is you cannot lose money this way, as if the tied index will decrease you won’t feel it – it just means you do not get and cash.
And there is one more thing about indexed universal life insurance. There is a thing for this subject called cap. Cap is the maximum rate of cash you can get as an income if the index tied grows. For example if cap is 10% and index grew on 30% while your participation makes 80% you will get maximum of 10% income instead of 24%.
To conclude for IUL you can change the death benefit as well as the payment rates in case you need it during the contract. However, if you miss payment – even one – you may lose everything and not get paid in case.
So it is up to you to choose what type of policy to choose – just make sure you can afford as insurance company has to be paid on time on the permanent basis.