Types of Life Insurance Policies
There are a few specific kinds of life insurance in Boston and Massachusetts. Below you will read more information on Massachusetts term life insurance, whole life insurance, universal life, and variable life insurance. One kind is not any better than the other, however, each type of life insurance works differently and can allow people to achieve different goals, objectives and budgets:
1. Term Life Insurance
Term Life Insurance is usually the cheapest type of life insurance. This is because term insurance is temporary insurance. There is a specific premium for a set number of years, and when the term is over, the policy ends. Term Insurance policies usually come in term lengths of 5, 10, 15, 20, 25 or 30 years. Since there is no investment account or cash value account in this type of insurance, the premiums tend to be much lower because you are only paying for the cost of insurance and nothing more. Because of this, people can purchase larger amounts of insurance for less money each year.
Some Term policies offer a Return of Premium feature, which allows the policy owner to reclaim all his/her paid premiums when the term is over.
2. Whole Life Insurance
Whole Life Insurance is, by definition, a policy for your entire life. Whether you live until the age of 58 or 108, as long as you pay your premium each year, you are guaranteed to have coverage in force for life. Whole Life Insurance provides a death benefit, which can be increasing or level, as well as a cash value account. The cash value account grows over time and can be used in different ways. The owner of the policy can take a cash loan from their cash value account, use it as collateral for a bank loan, reduce their premiums, or simply draw from it each year during retirement.
Whole Life Insurance tends to be more expensive than Term Insurance, because a portion of your premium is invested on your policy’s behalf in a cash value account, which is usually comprised of long-term, fixed rate investments. Based on the performance of these underlying assets in the cash value account, a dividend is paid to the policy owner each year. Whole Life Insurance is traditional insurance coupled with a long term investment that builds equity.
3. Universal Life Insurance
Universal Life Insurance is very similar to whole life insurance, but differs from it in a couple of ways.
First, with Universal Life Insurance, instead of the cash value account returns being comprised of long-term, fixed rate investments, they are replaced with returns tied to short-term interest rates and periodically adjusted interest rates.
Second, premium payments differ with Universal policies. Unlike in Whole Life Insurance, where the premiums are fixed and need to be paid each year, Universal Life Insurance has a flexible premium structure. After the initial premium payment, premiums can be paid at almost any time, and in almost any amount, restricted only by certain minimums and maximums.
Lastly, Universal Life policies allow the owner to adjust to a higher or lower death benefit more easily during the life of the policy than with a Traditional Whole Life policy.
4. Variable Life Insurance
Variable Universal and Whole Life Insurance differ from a standard Universal or Whole Life policy because instead of your cash value account being based on the investments of the insurance company, it is based on your own investments in the market. Variable Life Insurance allows the policy owner to choose where the investment portion of their premium will go. Policy owners can typically choose between a few different investment options for the assets fueling their policy’s cash values. These investment options tend to be bond funds, money market funds, common stock funds, or any combination of the three.
Generally, these types of policies protect the policy owner with a death benefit guarantee stating that the death benefit cannot fall below a certain level regardless of how the investment portion of your policy performs. However, because the owner of the policy assumes all of the investment risk, there is no protection from falling cash values if his/her investments do not perform well. Even though these policies are more risky, they can provide greater returns than a standard Universal or Whole Life product.
These are just the key points, and a brief introduction, of the four major types of life insurance products available to you. In deciding what type is right for you, you should consult with an insurance professional to determine what fits your needs best. If you would like to discuss your needs with an insurance representative, please click here to be redirected to our contact page.
