It is important to have insurance in your investment portfolio. There is nothing macho or cool about living your family in dire financial straits when bad things happen. That is one of the reasons that after you have decided that you need life insurance, the next step is to figure out the type of life insurance you need.
We have already discussed term life insurance, next we discuss the following:
1. Whole Life Insurance
This is the most commonly sold life insurance. It has a term life component in addition to a savings component. Part of your premium goes towards life insurance and another towards a savings component.
The savings component will accrue to a cash value which can be used to borrow up to 90% of the accrued value.
2. Universal Life Insurance
Universal life insurance is a version of whole life insurance where the policy holder opts to have potentially higher earnings on the savings component.
It is very flexible compared to other types of life insurance in that you can increase, decrease or defer your premiums. You can withdraw the cash values. You can even change the face values of your insurance policy.
Most universal life insurance policies offer guaranteed returns on cash values. Most are at least 4% of cash value per annum.
All these features come with a price. Most universal life insurance policies include up-front fees as well as administrative fees. Your premiums are sometimes also subject to change.
3. Variable Life Insurance
If administrative fees for universal life insurance are high, variable life insurance fees are higher.
It offers fixed premiums and control over your policy cash value. The cash value is invested in your choice of stock, bond or money market fund. This allows for the cash value and death benefit to rise and fall based on your investment performance.
There is no guarantee in the cash value unlike universal life insurance but your capital gains and investment returns are tax deferred as long as you still keep them in your insurance policy.
4. Universal Variable Life
For those who are affluent and can take on risks, universal variable life insurance may be considered. You are able to control your investments but there is no guarantee in death benefit other than the original face value of the death benefit.
You should take your time before you invest in any type of insurance policy. Asking questions and yes, reading the fine print is essential. Many people have taken the wrong policies with false hopes and expectations. Taking time to learn more about the policies will save you a lot of heartache.