How do you know what is right for you? Here’s a quick look at all of the options: term, whole, variable, and universal. The wrong kind of life insurance can do more damage to your financial plans than just about any other financial product today. So, the first and most important decision you must make when buying life insurance is: term, permanent, or a combination of both.
TERM life policies offer death benefits only, so if you pass away, you win (so to speak). If you live past the length of the policy, you (or, more specifically, your family members) get no money back.
PERMANENT life polices (also known as whole life insurance) offer death benefits and a “savings account (also called “cash value”) so that if you live, you get back as least some, and often much more than, the amount you spent on your premium. Permanent life insurance is more expensive than term premiums, however, the premiums for permanent life stay the same over the years, while terms life increases.
VARIABLE life policies has the fewest guarantees and therefore offers the greatest potential for cash-value increases, if you consider yourself a knowledgeable and risk-accepting investor, you should check into variable life insurance. Buyers are typically offered a variety of mutual fund accounts, ranging from money market funds to aggressive growth funds.
UNIVERSAL life insurance is more flexible than traditional whole life, because premiums can vary from year to year and sometimes can even be skipped. Universal life has maximum guaranteed premiums and minimum guaranteed cash values and death benefits. Instead of dividends, universal life policies earn interest at the credited interest rate determined each year.
Life insurance should never be purchased solely as an investment. After all, some of your premiums are being used to buy death-benefit coverage. Life insurance should not be purchased on children as a way to save for college, and make sure you (and your spouse) have all the coverage you need on yourselves before you buy any coverage on a child.
When you make your purchase, avoid all the fancy riders, but do consider the waiver of premium, which suspends your premium payments as well as keeps the policy in place if you become disabled.