Term, Permanent And Universal Life Insurance
Term life insurance provides the coverage a specific period of time called “term”. For instance, the term life insurance is designed to protect the mortgage or provide the income to your family in the case of your untimely death. You will pay the premiums on the monthly basis and as long as you will pay these premiums you life insurance policy will remain in force. Once your term life insurance policy reaches the end of the term (it could be 5, 10, 20 or 30 years) you have to renew your term life insurance policy at a higher price. If you die within the term of the life insurance policy, than your beneficiaries would receive a lump sum of money from your life insurance company.
In contrast, the permanent or whole life insurance remains in force till your death. You pay the premiums for a specific period of time (usually between 10 and 20 years) on a monthly basis. A part of your monthly payment goes to cover the insurance and the life insurance company that provides the insurance investments to the remainder. Generally you do not have to pay any premiums; your dependants will receive huge sum of money after your death.
Permanent life insurance policies have been criticized because they have very low investment returns. Thus there are a lot of advices to but life insurance protection with the term life insurance policy and invest the difference between term life insurance payments and the permanent life insurance ones into the separate investment vehicle such as stocks, mutual funds, or bonds. Usually people purchase the life insurance policy when they need stability and security in the event of their untimely death.
However there is a new, more flexible product on the market of life insurance – universal life insurance policy. While the life insurance companies control the savings in the permanent life insurance, the savings in the universal life insurance policy are controlled by the policy holder. Life insurance companies offer a lot of different investment options for this saving component, even including mutual funds. In this way you have the ability to meet your life insurance needs and to increase your returns on investment.
Among all advantages of the universal life insurance policy there is the most important one – it is a tax-advantaged growth. When you are paying the police premiums, the part of your payments cover the insurance and the part is invested. However, when you decide to withdraw the money from your investment, you basis is higher with the universal life insurance policy. The cost base of the universal life insurance policy is equal to the sum of all your premiums – the money you have invested plus the money to have used to buy the life insurance policy.
The choice of life insurance brokers is an important one, because there are many life insurance brokers in this industry, but can all of them take proper care of your situation? Read more about finding and choosing life insurance brokers here.