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Life insurance can be a confusing product, particularly because there are so many different types available. While term life is the most popular, there are other forms of life insurance offered.
While term life insurance remains the most popular form of life insurance offered on the market today, in reality it is just one of several different forms of insurance that are offered by insurance companies across the nation. This guide can assist you in prioritizing and selecting the best type of insurance to help you and your family.
Each type of life insurance varies slightly from insurer to insurer. Depending on your needs, there could be tax benefits associated with one type of insurance that could make it particularly useful for you. You may want to consult a tax professional first before purchasing a policy.
Forms of life insurance
- Whole life insurance: A derivative of term life insurance, whole life is purchased for the whole life of the policyholder. This means that the policy will last until the policyholder's death, or until the policyholder decides to cash it out. The premiums for the policy are paid annually, and the policyholder knows the amount of the premiums years in advance. This means it's very advantageous because you can budget ahead of time and anticipate your insurance costs. Whole life policies earn a "cash value" and grow over time. This type of insurance costs more than term life, but it also might have more advantages for you and your family.
- Universal life insurance: Universal life insurance also builds a cash value. The cash value earns interest, just like with whole life, and is usually invested in the stock market, in an index fund or in a mutual fund. It can be considered a somewhat volatile type of life insurance because it is tied to investing. Funds typically increase on a tax-deferred basis, which means that there could be tax advantages for you and/or your beneficiaries.
- Variable life insurance: A type of universal life insurance, variable life is similar to universal life, except the policyholder can designate where and how their contributions are invested. For example, if you're a conservative investor you might want to select money markets, which are less volatile. But conservative selections also will result in the potential for less of a payout. It's up to you to determine which strategy you want to take.
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