Life insurance policies are designed to pay a death benefit to your beneficiary when you die with some types offering additional benefits while you’re alive too. Put simply, there are three main types – whole life, term life and universal life insurance and while there are variants to each of these types, policies fall into one of these categories.
It may not always be easy to pick out the best insurance policy that suits your needs, hence using an insurance comparison platform may help.
In this article we will give you a brief overview of the three main types of coverage.
Whole Life Insurance
Whole Life is the original form of coverage and is sometimes referred to as ‘permanent life’ or ‘straight life’. This type of policy promises to pay an agreed benefit upon death providing the premiums have been paid. It can also be used as a savings plan, with the accumulated fund being known as the ‘cash value’. A whole life policy offers three main guarantees:
- A guaranteed rate of return
- Guaranteed premiums throughout the term – these are agreed when you take the policy out and will not change
- A death benefit that covers your entire life
Term Life Insurance
Term insurance provides coverage for a specified period or term – usually 10, 15, 20 or 30 years. When the term ends, your coverage ends. The premiums are usually level, fixed and generally affordable. When your policy reaches the end of its term, you will be able to continue your coverage although the premiums are likely to increase. One important point to note is that there is no cash value or savings element attached to term insurance – it only pays out in the event of your death. For this reason, the premiums are generally very affordable.
Universal Life Insurance
Universal life insurance policies are a hybrid of term insurance and a savings plan. You pay an agreed cost to insure your life and these payments must be enough to cover the cost of insuring your life and the proposed death benefit. However, with this type of contract, you can also use all or part of the cash value to cover your expenses. The cash value of your policy will increase as interest is credited to it. The most flexible type of policy, there is no set premium – you just have to ensure that your payments cover the cost of the insurance to ensure that your death benefit remains in force. As it works in a similar way to term insurance, the cost to insure your life will increase yearly.
Selling Your Life Insurance Policy for a Cash Payout
Should you opt for universal or whole life policies and you wish to cash them in, it is possible to sell your policy for cash at the market value to give you lump sum that can be used for retirement expenses, long-term care, medical costs or anything you wish. Before you do so, we always advise that you use a guide to research whether it’s a suitable option for you. While many companies provide life settlements, they should always offer you a settlement that works for you and your financial goals, so be sure to check out what different companies have to offer.