In the past, I emphasized the importance of taking up life insurance to make sure that your family is covered in case of unexpected death. Like most financial products there are a number of options for you to consider when buying a policy. In this Blog, I will provide a summary of the different types of policies available in the market.
When it comes to life insurance there are two main categories: term and permanent. With term life insurance, you pay a monthly or annual premium, and, if you die, your beneficiaries will receive a death benefit. Term life insurance ends after a specified period of time.
The other type of life insurance is called permanent life insurance (also referred to as “cash value insurance). permanent policies last your entire life through offering an extra savings or investment component called the “cash value.”
In all permanent life insurance policies, in contrast with term policies, your death benefit is made up of a regular term life insurance policy and your cash value. Over time, as your cash value grows, your term life insurance policy will get smaller. Eventually, your cash value will cover the entirety of your death benefit, and your variable life insurance policy will no longer have a term component.
When considering taking up life insurance there are a few things to take into accounts such as current work benefits and available income. You should then consider which is the right type of policy for you based on your financial and personal circumstances. To help your thinking process here are the main differences between term and permanent policies:
Advantages of term life insurance:
- Your premiums is fixed for the term of the policy. Regardless of the performance of the insurance fund, your life insurance company cannot raise your premium
- Lower management fees. As the policy is managed through one mutual fund feed are significantly lower
- You know exactly what benefit your beneficiaries will get upon your death. This is because your benefit is fixed and agreed upon when you buy the policy.
Advantages of permanent life insurance:
- Variable life insurance lasts for your entire lifetime. As long as you keep paying the premiums, your variable life insurance policy will stay in force and provide a death benefit to your survivors.
- Growth is tax-deferred. If your cash value is distributed as a death benefit (as opposed to being withdrawn before your death), your beneficiaries will not have to pay tax on it.
- It typically has a higher rate of growth than whole life insurance. While a whole life policy’s cash value is typically guaranteed to grow a certain amount, it’s smaller than the potential growth of a variable life insurance policy.
If you read my blogs before you will know that I feel strongly about ensuring that your family is safe in any event. Life insurance is a big part of it so whichever policy you choose is up to you as long as you consider it. We will be delighted to assist you further should you wish to review your options. Get in touch to book an initial meeting.