Life Insurance Policy

If you are thinking about purchasing a life insurance policy for the first time, here are four different types of policies and their benefits, to determine which best suits the needs of you and your family.

The most common life insurance policy is called term insurance. You purchase a policy for a set period, and at a set premium. For example: you may decide to purchase a ten year policy to cover yourself until your children finish college. If you die during the course of the policy, then your beneficiary will receive the value of the policy as a lump sum. Once the policy has expired you will receive no payment of any kind, even if you die shortly afterwards. The other types of insurance policies all pay a benefit upon your death, and also include a cash account. The premiums for these policies are always larger because of this. These policies sometimes allow you to withdraw money against the cash account, or take a loan from it. You should be very careful before doing this as it almost always results in a reduction of your policy benefit. The benefit is always paid to your named beneficiary upon your death.

The second most common is whole life insurance. This policy covers you for your whole life, and is not for a specified time period. The life insurance rate is normally fixed for as long as you continue to pay the amount. There is also the option to receive dividends from your policy as cash payments. As an alternative, you can use these dividends to reduce future premium payments. These polices offer no flexibility to invest in either separate funds, or to have separate accounts. There is also no option of changing your premium payments.

For more flexibility, you may wish to choose a universal life insurance policy. These policies have greater account flexibility than the whole life insurance, but carry more of a risk as it relates to investments. It is possible to earn interest at market rates for the cash account. As the policyholder you can, depending on your policy agreement, choose to change your premium payments, miss payments or pay in a lump sum amount.

The last life insurance policy is known as variable insurance. These policies are the most flexible, but carry the greatest investment risk. The final benefit can vary depending on how the cash account performs during the course of the policy. These policies allow you to invest in separate accounts, but the policyholder is responsible for managing the investments and thus, the success of your accounts depends primarily on your investment choices. Some of these policies carry a cash value penalty for terminating the contract early.