Life insurance is pretty simple at first glance. It’s a policy you purchase and continue to pay off until your death. Upon your death, your beneficiaries receive a payout. However, there’s more to life insurance than meets the eye. In fact, there are lifestyle factors that affect your fitness for certain policies and multiple types of it, other than what was just described. Each of these policies are vastly different from each other. In this article, we’ll be going over the different types of life insurance and how they work.
Whole Life Insurance
Permanent life insurance, also known as whole life insurance, is the most commonly purchased form of life insurance. It’s the policy where you simply pay off the premiums over the course of years and build value over time. This policy is often considered to be one of the best security blankets a person can have. It prepares your beneficiaries for the end of your life. Upon your death, your beneficiaries receive the total value of the policy.
Permanent life insurance policies can yield a massive payout if it’s been active for years. However, there’s another way for you to receive a payout that doesn’t require your death. Instead, you can look into selling your policy through the company you obtained it from or getting a life settlement. If you choose to sell it back to your company, you’ll be surrendering the policy and obtain a fraction of the overall value. Life settlements are more or less the same except the buyer is from a third party. The third-party buyer becomes the sole beneficiary of the policy while you end up liquidating your insurance policy. Liquidating simply means turning an asset into cash. Interestingly enough, whole life policies tend to see the most value when sold through a life settlement.
Term Life Insurance
A term life insurance policy is the opposite of what a whole policy does. Rather than build value over time, term policies give you set amount, which can be up to $250,000, and a time period. This time period is for how long the insurance is active for. If you pass away during the policy’s lifetime, your beneficiaries receive the face value. However, instead of building value, you lose it over time. Once the policy’s lifespan is expired, your beneficiaries will no longer be able to receive a payout. If you plan on selling the policy, remember that you need to make sure that it can be converted to a permanent one. This only applies if it’s through a life settlement.
Variable Life Insurance
Variable life insurance works a little similarly to a whole policy. You’re able to receive lifelong coverage with a cash value. However, the policy is connected to investments. As the policyholder, you’ll have to choose sub-accounts to invest in, similar to the stock market. This particular insurance can give you a considerable payout if you play your cards right. But like every other investment, there are pros and cons involved and you can actually end up losing cash value faster than you can realize it. You need to be diligent when deciding to go with this type of life insurance.
