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Even if you currently have a life insurance policy, depending on your changing needs, there might be several other alternatives that are more suitable for your unique situation. There are several types of life insurance policies to choose from - some may have fixed rates while others have variable rates - but below are the most common types:
A term life insurance policy is the most basic and frequently the most affordable. It guarantees you coverage for a set period of time as long as the premiums are paid. The period of time, or term, is a specific number of years (up to 30) or until a specified age. Term insurance policies are usually renewable once that time period has expired, although premiums will likely increase. It’s one benefit is a death benefit only if the insured dies within the defined period of time. It does not accumulate any cash value.
Whole life is frequently referred to as “permanent” insurance because, unlike a Term policy, it remains in force for your whole life as long as premiums are paid as scheduled. It offers guaranteed premiums that will not increase or decrease, a guaranteed death benefit, and can build cash value within your life insurance policy. You may be able to borrow funds from the cash value or surrender your policy for its face value, if necessary. When the insured passes away, the beneficiaries will receive the amount of the death benefit minus any outstanding loans and loan interest that may be due on the policy.
Universal life goes one step further as compared to whole life. It has the same type of coverage and cash value, but the flexibility is greater. As long as the cost of coverage and policy expenses are met, the insurer has the flexibility to pay premiums at any time and in any amount - subject to some limits. Some universal life policies give you control over how your cash value is invested while others can grow at a declared interest rate.
Indexed universal life (IUL) insurance shares the coverage and premium flexibility of other universal life policies, but the crediting of interest is very unique. Indexed interest is linked to the performance of an external index such as the S&P 500. The cash value increases are linked to positive changes in the equity index. What if the index were to go down? If the index stays flat or declines, the cash value is still credited with a minimum guaranteed interest rate. An IUL policy is for the insurers who do not like the volatility and risk that some other policies take part in and would rather have the stability and guarantees in the good times or bad times.
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