Life insurance is important for people who have dependents because it can help support them.
Even people who do not have dependents may need a policy to cover the cost of burial and any outstanding debts that might be subtracted from the value of an estate. There are dozens of different types for different situations, and it can feel overwhelming to try to sort through all the possibilities.
It’s important to keep your insurance policy active and in good standing. People may choose to sell their policy to a third party and this is commonly done when a person is terminally or chronically ill, and it is known as a viatical settlement. It can help pay for medical expenses, hospice care and other costs and can help a family get out of debt that results from these costs. Sellers may have the option of either getting a lump sum or disbursements. However, most people just need one of the basic types of policies.
Term Life Insurance
This is a simple, affordable type of life insurance. It can be purchased for various terms, such as 10, 20 or 30 years or more. There are also shorter-term plans that are just for five years or even one year. With this type, you buy a specific amount of coverage. The straightforwardness of this policy makes it a good general type of coverage for many people. The one drawback is that when it is renewed, premiums may go up, and for older people, they can sometimes be particularly expensive. You should choose the term of the policy with this in mind.
Whole Life Insurance
Most other types of life insurance are permanent. One advantage of whole compared to term is that the premiums do not change. This means that if you purchase it when you are young and healthy, you will continue paying the same low price for it. A disadvantage is that it may not actually be cost-effective. It increases in value over time and you may be able to borrow against it, but in some cases, the money might be better used for other investments.
Universal Life Insurance
This differs from a regular whole life policy because the premiums can be variable and the potential for savings higher. It also offers the flexibility of allowing the owner to choose what portion of the premium goes to the death benefit and what portion goes to the cash value. You can borrow against this policy.
Variable Life Insurance
A variable plan usually has premiums that are fixed, but the owner has the option of choosing how the value is invested. It is similar to a mutual fund in this respect. It does place the burden of risk on the owner instead of the insurance company, and its cash value and death benefits may increase or decrease based on the investments made. While there is usually some sort of minimum death benefit guarantee, there may not be one for the cash value.