Have you settled on the idea of acquiring a permanent life insurance policy, as opposed to term, but aren’t sure what the next move is? If so, you’re like many others who understand the advantages of permanent coverage over non-permanent. That’s a great first step. However, you’re now faced with the choice of which kind of policy to purchase. Similar to how you cannot ignore the importance of health insurance, you also cannot ignore the need to recognize and research life insurance variations as well.
Are all permanent forms of coverage the same? No, but they have many features in common. What’s the best way to get started? Learn about the main characteristics of whole life policies, find out about life settlements (should you ever decide to sell a policy for cash), know your four basic choices, and decide how to shop for the best possible coverage.
What All Permanent Policies Have in Common
The concept of built-up savings within a policy is known as its cash value. With every premium payment you make, the cash value grows. In most cases, the growth is tax-deferred and you can borrow against the balance once it becomes large enough. Note that sometimes there is a waiting period before you can take out a loan against the cash balance.
All policies have a death benefit amount, which is unrelated to the cash value. In the event that you decide to cancel coverage, you can usually get all, or a large portion of, the cash value back. But, no matter what kind of coverage you have, it will remain in effect as long as you keep it paid up and don’t cancel it.
How Life Settlements Work
It happens more often than you suspect. People choose to sell their insurance contracts via a process called a life settlement. If the concept is new to you, get a firm grasp of how it works by reviewing a short guide that will teach you all the key concepts about how a life settlement can work for you. Why do people choose to sell their policies for cash? There are dozens of reasons, like paying unexpected medical bills, taking a vacation, starting a business, paying back taxes, financing a child’s education, and many more.
How To Shop and Evaluate the Options
Do online research to find out about the most reputable carriers. Compare features and prices but be careful not to choose based on price alone. The financial soundness and customer service of a company are often much more valuable than getting a small discount on premiums.
The Four Main Kinds of Policies
What are whole, universal, variable, and indexed policies? They are the four main variations on the main theme of permanent coverage. Here are the key features of each:
- Whole: Cash value builds up. Premiums and death benefit do not change.
- Universal: Based on built-up cash value, you have the option to reduce the premium payment amount and increase the death payout.
- Indexed: Allows you to select the investments that can contribute to higher or lower value.
- Variable: You can adjust death benefit amount and premiums, and invest in a variety of securities, which could increase or eat up your entire cash balance.