There are many different types of life insurance on the market, and each one covers something slightly different. It can be confusing to understand what each different type of life insurance does. However, knowing what each type of insurance does can help you choose the best coverage to meet your needs. The two most basic and common life insurance types are term and permanent, but there are other types such as universal and variable.
Term life insurance is the most basic type of coverage that can be purchased because it offers only death benefit protection. It is purchased for a certain length of time such as 15 years or 30 years. Once that amount of time is up, if the policy holder is still alive, he or she will need to requalify for life insurance at their current age and health status.
Permanent life insurance is different than term life insurance because it does not have a time limit like term life insurance does. Permanent life insurance coverage lasts for as long as the insured is alive, if they pay their premium. Additionally, permanent life insurance offers both death benefit protection and a cash value component that can be taken out of the plan and used. This type of life insurance is typically a better option. However, it is usually more expensive.
Universal life insurance is a type of permanent cover life insurance that also offers a death benefit and a cash value component, but with this type of insurance the cash value component funds are allowed to grow tax-deferred. This type of insurance is typically more flexible than regular permanent life insurance because the policyholder can change the amount that goes toward the death benefit or the amount that goes toward the cash value, within certain guidelines of the plan.
Variable life insurance is very similar to universal life insurance, where there is a death benefit and a cash value component. Although, with variable life insurance the policyholder can invest the cash value component of the insurance into different investments. This gives the policyholder the potential to grow their funds a lot more, but it also poses a risk of loss.
Aside from the types of life insurance mentioned above, there are many others that can be purchased. When shopping around for life insurance, the best thing to do is ask questions to gain a good understanding of the policy and determine what is the best fit for you.