If you are new to life insurance terminology, policies, and concepts, it’s essential to know about endless variations in policy types, amounts, and duration. There is no such thing as a one-size-fits-all life insurance contract. Just as you might spend months deciding which make, model, year, and car style to buy, the same goes for life coverage.
Some people ask financial planners, licensed agents, or CPAs (certified public accountants) for advice about whether to purchase term, whole, or other kinds of LI protection. Your particular situation will determine the features of the coverage you end up buying. Plus, there are dozens of top-rated companies and an assortment of variations in premium amounts, term length, and other factors. There have been certain money habits inherited from the pandemic era that emphasize an importance on savings and planning for the future, including life insurance. Here are some of the most important things to know about the different types of life insurance you can get.
One of the first points to ponder is whether you want an agreement that includes a cash value or not. For example, nearly all wholelife policies have at least a minimal cash surrender amount that grows as the years pass. In some instances, the amount can become quite large after you pay regular premiums for a decade or more. Always ask to see a chart of how any cash worth rises over time. And find out whether you, as the policyholder, will have the chance to borrow against the entire amount or just a percentage of it.
If you are terminally ill, you can sell your policies to a third party and receive cash payment immediately. This is one of the only ways to access the total value of a policy before you die. The term viatical settlement means selling a policy for some amount greater than the cash surrender value but is less than the death benefit. In nearly every case, you can use the proceeds however you wish, but it’s important to understand precisely how the process works. The good news is that you can review a handy online guidebook that explains all the pertinent details about how viatical settlements work. Then, it’s up to you to decide whether this special provision is in your best financial interest.
The least costly and most common form of the main types of insurance is called term. The name refers to the fact that there is a specific time limit on the policies, usually set at five or ten years or multiples of those lengths. Prices are low because most term contracts build up no, or very little, cash value and expire at a predetermined time.
In general, the term wholelife means that the issuer cannot cancel the coverage for any reason other than non-payment of premiums. That’s why financial experts often call this kind of contract permanent insurance. As long as you pay premiums on time, the contract remains in effect until you die. As you might suspect, permanent policies cost more than the term versions. It’s helpful to view wholelife as a hybrid financial creature because it offers a payout upon death and investment features, like cash value and the ability to borrow against that amount.