You can compare term life insurance to like leasing a vehicle. You have the convenience of driving the car during the time you pay for it. When you end payment, you give up the car. Similarly, you will have term life insurance coverage during the time you pay the premiums.
Permanent or whole life policies are made to accumulate monetary value. Just like when purchasing a car, you own a valuable item. The difference is that most likely the policy will increase its value.
Insurance policies get their names from the way they accumulate value. There is whole, universal, and variable universal life insurance:
Whole life insurance has premium rates and death benefits that generally remain constant for the policy's life. Premiums are paid during the time the policy is in effect.
Universal life insurance has premium rates and death benefits that may be adjusted by the policy holder. In general, if the death benefit increases, you need to prove that you are insurable by providing medical or other information. A universal life policy will increase a declared amount that varies once in a while.
Variable universal life insurance has adjustable death benefits and premium rates. Again, if the death benefit increases, be prepared to prove you are insurable by providing medical or other information. Variable universal life policy rates will increase according to an investment decided upon. You invest in a market instrument similar to mutual funds. If the policy lowers in value, your premium rates increase.
You can see the contrast if you put yourself in the insurer's place. As the policy grows in value, some of the funds cover the expense.
Whole life insurance is the riskiest and most costly for an insurance company. The company pays the insured a death benefit regardless of the monetary value of the policy. If a policy holder is paying, the company must honor death benefits.
Universal life insurance carries a moderate risk for insurers. Gains in a policy provide the rate that interest remits. Occasionally, you will gain low interest rates. Possibly, you will have to pay more to maintain your coverage.
Variable universal life insurance is the least risky for an insurance company. In a variable policy, the return rate is changeable. In other words, you are unsure how quickly your policy will increase or decrease. Younger people usually get these kinds of policies as they can weather changes in their portfolios easier. This kind of policy is the riskiest and generally provides the lowest premiums.
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