If you are considering what life insurance to buy, you need to know some types of life insurance, how it works, what fees are needed and what type of insurance is suitable for you.
Here are the types of life insurance
Fixed life insurance
Life insurance still offers death benefits that improve for several years - usually 5, 10, 15, 20, 25, or 30 - that you choose when buying a policy. You pay a premium for each year.
If you buy general insurance premiums, you will pay the same amount each year. When insurance rises, you stop paying premiums for no reason then you will no longer have coverage.
If you die at any time during coverage, your family will receive the benefits. If you die when the coverage ends, the price won't get anything.
Life insurance is generally the cheapest among the various types of insurance for coverage that you get and is the easiest insurance to understand. For this reason, this insurance is the best type of insurance for most people.
Various types of life insurance can still be converted into a permanent whole or a universal life insurance policy whenever you want as long as the policy is still running, without having to review medical requirements.
This policy can stipulate that you can only change policies at a certain age such as 70 years.
Overall Life Insurance
Overall life insurance offers a death benefit no matter how old you are, as long as you pay the policy premium. Therefore, this insurance is often called permanent life insurance.
In addition to providing death benefits, overall life insurance also collects cash value which is guaranteed to increase in a certain amount each year.
As a result, overall life insurance premiums were significantly higher than fixed life insurance premiums for the same death benefit.
Part of the premium for the first few years of the policy will be given to administrative fees and agent commissions. The amount of the premium is the same every year, and you can choose to pay premiums every year as long as the policy affects a number of assets in a number of years.
Paying premiums after the age of 10, 15, and 20 years instead of providing lifetime protection will make the annual premium greater that year, but can be attractive to some people who want to eliminate the cost of ongoing life insurance premiums before retirement .
The other type is called the overall single premium which makes you pay all premiums higher than the repayment premium.
You can use policy cash for any reason, such as paying for a child's tuition or paying an emergency fee. Some of the debt that you have not repaid when death will decrease thanks to the benefits of the death policy.
But the cash value accumulated for your death is not added to the benefits of the death policy; This cash will be returned to the insurance company.
Another reason, overall life insurance costs more than fixed life insurance because the entire insurance policy often pays annual dividends.
These dividends can be used to help pay premiums or buy more policies, or insurance companies can easily give you dividends.
Because overall insurance is difficult to understand and the price is more expensive than the coverage provided, this insurance is not the best choice for most people.
That is why you will often hear the phrase, "buy fixed insurance and invest the difference." Investing the money you save by buying permanent insurance instead of total insurance rather than putting it in cash and paying agent commission will make the use of money better for most people.
As has been said before, overall insurance is easier than universal insurance from universal and variable.
Universal life insurance
Universal life insurance is one type of permanent life insurance. This insurance is the same as overall insurance in many ways, but offers more freedom. You can increase or decrease the benefits of death and cash after you take the policy.
Therefore the premium will go up or down. Increasing death benefits requires you to pass a medical examination; reducing the benefits of death can result in you being billed.
Cash gets interest from investments made by insurance companies. This type of insurance also offers freedom when paying premiums.
Universal life insurance is more complicated than overall life insurance and also more expensive. In addition, this policy can be underfunded from time to time because interest income from cash is not always enough to cover it and sometimes premium prices will increase rapidly.
If the policy is underfunded, you have to pay more premiums to keep it running. If not, the policy will disappear. Universal life insurance also has expensive administrative and management fees that are charged at premiums.
Because of the complexity and cost, universal life insurance is not recommended for most customers. However, like other permanent life insurance, the ability to take policy cash at low interest rates and without check credit is an attractive feature for some customers.
Universal life insurance guaranteed
Universal life insurance is guaranteed to offer coverage until the age of 90, 95 even until you die, but this insurance is a little more expensive than overall life insurance.
This insurance has no cash value or investment component, or management fees that accompany it, and premiums can be paid on several levels, for a lifetime or short term, similar to overall life insurance.
Unlike overall life insurance, this policy does not run the risk of being underfunded and requires an additional premium to keep it valid.
This type of insurance can be attractive to seniors who still need coverage; This insurance can be cheaper and offers better protection than fixed insurance.
This insurance has a death benefit in accordance with the amount you choose when you take the policy. Some guaranteed universal insurance policies run the risk of being lost if the policy holder forgets to pay the premium; other policies are not lost and do not have this risk.
This insurance is quite easy and can be a good alternative to permanent life insurance for people who want permanent coverage.
Variable life insurance
Variable life insurance is a type of permanent life insurance that has a cash component, such as overall and universal insurance. This insurance has a more expensive price than permanent life insurance.
Variable life insurance has a fixed premium and a guarantee of a small death benefit, but the death benefits can change with changes in the rate of return of cash, which consists of various types depending on the investment chosen by policyholders in life insurance accounts (called subacun)
Some premiums will provide cash policies / investment components, and the amount can change according to the chosen investment, such as stocks, bonds and mutual funds.
If investment increases, policy holders can use the increase to buy more coverage or pay policy premiums.
Policyholders can also borrow cash. If investment decreases, cash policies will go down, reduce borrowing ability and require you to pay more expensive premiums. Every loan given at death will reduce the death benefit.
Variable life insurance is regulated by the exchange and securities commission due to its investment component. This variable life insurance is complicated and not a good choice for people who are concerned with the death benefit coverage for loved ones.
Universal variable life insurance
Universal variable life insurance is a small part of all life insurance sold. This insurance is a combination of variable life insurance and universal life insurance.
Like variable life insurance, this insurance makes policyholders invest their cash and easily change the amount of insurance coverage purchased. This insurance policy, such as variable life insurance, is regulated by the SEC because of its investment component.
Like universal life insurance, you can set universal variable life insurance premiums, use some cash policies to pay premiums or take loans.
Most of the premiums will go into the investment component, even though some of them will go into management and administrative costs.
Universal variable life insurance has a death benefit based on the performance of the investment policy and also has a guaranteed low death benefit.
You can increase the benefits of a death policy if you still have good health, and you can also reduce the death benefit policy, even though you will pay the surcharge to do so.
The investment performance of the policy also has an impact on cash. If your cash drops to the point where you cannot afford the policy and insurance costs, you have to pay an additional premium, or reduce the number of policies if not, your policy will be lost.
You can borrow cash from a universal variable life insurance policy, but all existing loans will reduce the death benefit policy.
Universal life insurance is difficult to understand and is only suitable for people who have experience in insurance and investment.
This type of policy, as well as variable life insurance, can be attractive to wealthy people who have contributed a lot to retirement tax accounts and want to know other ways to tax investment.
Universal variable life insurance is not the best choice for consumers who are still worried about providing death benefits for their families.
Life insurance after retirement
You may not need life insurance after reaching retirement - assume that your child, if you have one, is already big and can support himself and you have enough savings where your wife does not need life insurance to meet daily needs after your death.
In addition, life insurance for seniors, especially when dying in old age, can be quite expensive because seniors have the possibility of dying - and insurance companies have to pay death benefits - which is higher in cost than young policyholders.
However, there are some situations where it is better to continue buying life insurance after retirement, namely:
- You don't have enough savings to finance your living partner
- You have a disabled child or the like who relies on you to make ends meet.
- You need a way for your child to repay your kindness after nurturing it from his savings or spending time from work
- You are rich and need tax and investment benefits because you have provided retirement savings to a tax account.
- You can easily pay premiums and want to provide benefits to relatives or charity when you die.
- Your land is large enough to be the subject of a land tax when you die and you want to use life insurance to help reduce debt or prevent goods from being sold to pay the tax.