There are many different kinds of life insurance policies available to fit individual needs and budgets. While each policy can be tailored on a individual basis, the main categories are: whole life, universal life, variable life and level term life. Each one is different in how it is paid into, how it is disbursed and in the premium payment amounts. So, it is important to carefully consider each one before purchasing a policy.
Whole life is a permanent life insurance policy that may pay a dividend. Universal life is also a type of life coverage policy with a combined investment fund except the investment is one that pays out at the market rate of return. Variable life is similar to both whole and universal life policies, except the investment component is tied to a stock or bond mutual-fund investment. And, finally, term life refers to a policy that does not have an investment component but offers a monthly premium guaranteeing coverage for a predetermined amount of time.
How will you know which one to choose? As discussed within the last installment of our blog series, consider how much you will need in coverage to afford your final expenses, debt pay offs and to replace your income for your family. According to the Insurance Information Institute’s article “Life Insurance Basics”, term life insurance is appropriate for individuals who either need life insurance for a specific period of time to ensure debts or expenses are paid off in case of any untimely death, or the person needs a large amount of life insurance coverage but has a limited budget. Permanent life insurance policies are appropriate for individuals looking for lifelong coverage and/or who want to grow a tax-deferred savings that can be used as a living benefit if the need arises. An example of an individual who may want to consider this type of permanent policy would be a parent of a child with lifetime special needs. While to the premiums for permanent policies are generally higher, they remain the same for the duration of the policy holder’s life while term life insurance premiums can rise with each renewal.
It is important to consider the needs of your dependents/beneficiaries should you not be able to provide for them. If you are interested in learning more about life insurance policy options offered through your New York State Bar Association membership, check out the NYSBA Insurance Program online here. Check back here next week for part 4 of our series on life insurance!