Types of Insurance Policies
Whole Life Policies
A typical whole life policy provides life insurance coverage for as
long as you live or until age 90 or 95, whichever comes first. Upon
your death, the death benefits will be paid to your beneficiary.
When purchasing a whole life insurance policy, you know your
premium amount and payment schedule, as well as your
guaranteed policy value and guaranteed death benefit. The
premium amount remains the same throughout the life of the
policy. It is very important to select the right insurance company,
as it will be managing the investment of the premiums for the
guaranteed policy value. While this type of policy is reassuringly
stable for many individuals, you should keep in mind that you will
not be able to change your premium payment amount or your
payment schedule if your financial circumstances change.
Endowment Insurance Policies
Endowment insurance pays the face value of the policy either at
the insured’s death or at a certain age or after a number of years of
premium payment. Therefore, it is more of an investment than a
whole life policy.
Endowment insurance is a method of accumulating capital for a
specific purpose and protecting this savings program against the
saver’s premature death. Many investors use endowment policies
to fund anticipated financial needs, such as college education or
retirement.
Term insurance
It provides coverage for a limited "term" or period of time. Most
insurance companies offer term insurance policies with terms from
one to thirty years. If you die during the term period, the policy's
death benefit is paid to your beneficiary. If you are alive at the end
of the term period and wish to continue the coverage, you will
have to reapply for an additional term of coverage. In order to
renew your policy after its term is up, you may have to prove that
your health has not significantly declined, and you will likely have
to pay a higher premium rate for the new term. The frequency of
increases in your premiums depends upon the term you select. If
you purchase a one-year term policy, and you want to continue the
coverage at the end of the one-year term, you have to reapply and
most likely pay a higher premium. If you purchase a five-year term
policy, and you want to continue the coverage at the end of the
five-year term, you have to reapply and most likely pay a higher
premium. However, the premium paid during the five-year term
will remain the same throughout the term rather than increasing
each year.
Term insurance is a good product for individuals who need
coverage against the possibility of their death for a short period of
time. For individuals who want a long-term policy or want to
combine investments with life insurance coverage, endowment life
insurance may be more appropriate.
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