For most people, making the decision between term or permanent life insurance is the most difficult aspect of purchasing a policy. However, if you end up going with permanent insurance, you're not quite out of the clear yet. You'll soon find that it's time to make another important decision in which type of permanent life insurance fits you best. There are four basic types available to you - whole, universal, variable, and variable universal. While all types of permanent life insurance share similar characteristics, they each have their own advantages and weaknesses. If you're having trouble deciding which form of life insurance is right for you, use this helpful guide to permanent life insurance types. Keep in mind that depending on the insurance provider, you may run into variants of these forms of permanent insurance.
Whole Life Probably the most common type of permanent life insurance, whole life insurance has become popular as a type of investment because whole life builds cash value over time. It can be more expensive than other types of life insurance, but it can also provide greater benefits. Some insurance companies may even offer a dividend option, where any excess premiums you've paid get returned.
Universal Life Sometimes referred to as adjustable insurance, universal life insurance is comparable to whole life, but with its own advantages. Universal policies have a savings vehicle like whole life, but they allow you to withdraw or borrow against its cash value. This flexibility allows you to take out a loan on your policy or even pay smaller premiums if your cash value can cover the costs. Remember, if you take out a loan and fail to pay it back, you risk losing your insurance policy completely.
Variable Life In addition to the death benefit, variable life policies offer different investment options, which are usually professionally managed. You can use whatever cash value you've accumulated to invest in stocks, bonds, and mutual funds to earn a greater return. Of course, there's always the risk of losing money through these investments too. Also, you can borrow against or withdraw from variable life policies, just like universal.
Variable Universal Life As the name suggests, variable universal life insurance policies combine several of the aspects involved with variable and universal policies. Like variable policies, you have different investment options for your money and the risk that comes with them. Similar to universal life insurance plans, you can also adjust your premiums if your cash value can cover the difference.