Life insurance offers monetary protection to the family members or dependents of a policyholder in case of the death of the latter. Hence, life insurance ought to be an essential element in everyone’s planning. Depending on the terms and coverage period, there are four forms of life insurance policies, namely term, whole, universal and variable. Comparing various
types of life insurance policies helps in selecting the one that best suits needs. Knowledge of each policy’s features would help in comparing the various
life insurance types.
Types of Life Insurance: Points of Differentiation
With each type of policy having its own set of benefits and disadvantages, it is essential to compare life insurance policies so as to make the right choice.
Term is the simplest and cheapest form of life insurance and provides a policyholder monetary cover for a specific period, which can range from ten to thirty years. The policyholder and beneficiary of the policy would, however, receive no benefits if the former outlives the policy period. Moreover, the premium amount for this insurance policy keeps on rising every time it is renewed at the end of each term.
Contrary to term life insurance, whole life insurance remains valid for the policyholder’s lifetime and, thus, the beneficiary of this policy is sure to receive policy benefits. The premium amount of this policy remains constant through the lifetime of the policyholder. This insurance type has an in-built cash value, which is invested by the insurance company. This value keeps rising as proceeds from the investment are added to it.
Universal life insurance is similar to whole life in terms of cash value and the policyholder’s involvement in investments made by the insurance company. These are different, however, in terms of premium flexibility. Under universal life insurance, policyholders have the flexibility to decide the amount and time of premium payment. The flexibility can, however, have a direct bearing on the growth in the cash value and the overall death benefit.
Under variable life insurance, a policyholder has a say in the way the cash value of his/her policy is invested by the insurance company. You can choose from a range of investment products.
Keeping these differences in mind, one can compare the various types of life insurance policies and make an appropriate selection.