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Looking to set yourself up for future financial successes? If so, consider starting with life insurance. At its most basic level, a life insurance policy is a promise between you and an insurance company that will provide your beneficiary with a sum of money upon your death.
Here, we'll focus on the basics of term life, whole life and universal life insurance to help you understand the fundamentals of each insurance type. Each could be appropriate for people in any life stage, but many factors could also come into play.
The bottom line? A life insurance policy could help provide economic security for your loved ones and put your mind at ease. So, enroll in "life insurance 101" to get started.
Term Life Insurance
Term life insurance provides coverage in the form of a death benefit for a fixed number of years — typically 10, 15, 20 or 30 — as long as you pay the premium. You choose the size of the death benefit depending on your individual needs. A death benefit is the amount paid to the beneficiary in the event of the policyholder's death.
Term life is generally the least-expensive life insurance option, and some term life policies offer optional add-ons.
Whole Life Insurance
Whole life insurance is a permanent type of life insurance. This means the coverage will last your entire life, as long as the fixed premiums are paid. Whole life provides a death benefit and cash value, which is money that increases tax-free that you could borrow against or receive if you cancel the policy.
Note that borrowing against the cash value accumulates interest — just like a normal loan. Also, if the loan is not repaid, it will reduce the death benefit or cash value.
Universal Life Insurance
Universal life insurance is also a permanent type of life insurance. Universal life provides a death benefit and cash value, but also offers flexibility in its premiums and benefits. The interest rate paid by the insurance company on the cash value could vary with market conditions, based on a formula laid out in the policy.
Which One Is Right for You?
Your insurance needs are as unique as you are. Maybe you have young children and are the primary wage earner in your household. Maybe you're a recent college grad heading into the working world for the first time. Maybe you're interested in providing a significant death benefit — or just enough money to help your loved ones' transition to a new financial situation.
Whichever type of insurance you decide on, taking the time to learn more about the available options will help you make the best choice. Consider speaking with a financial representative about your needs. This "life insurance 101" guide is just the beginning — a strong financial future might be waiting for you just around the corner. Care to dive deeper? Comparing the types of life insurance could help you select the right policy.