Life insurance is never something people really want to talk about. However, it is extremely important to be aware of and to employ into your family. Life insurance serves numerous purposes in terms of financial protection for yourself and your loved ones. To learn about the basics of life insurance, keep reading!
Term Life Insurance
As implicated by its name, term life insurance is life insurance coverage over a specific period of time. Once the term ends, you can either end your policy or re-enroll in it. There are several benefits to term life insurance, such as tax-free money for your family if and when you pass away and less expensive premiums. This type of policy is more suitable for young families, easiest to understand, and has more flexible options for policy length.
Permanent Life Insurance
There are several different types of permanent life insurance policies. To name a few, there is whole life insurance, universal life insurance, indexed universal life insurance, and variable life insurance. The benefits of permanent life insurance include consistent cash-value growth, advantages for your taxes, and more. Whole life insurance is the most common type of permanent life insurance policy, and it continues throughout your lifetime.
Universal life insurance entails that your premiums are pre-determined, but you are able pay in between your maximum and minimum. You can increase your death benefit as well. Universal life insurance policies allow you to earn interest which then increases your cash value on the plan.
Indexed universal life insurance is similar to other types of life insurance policies in that you are guaranteed payout after you pass away, however, with an indexed universal life insurance policy, “the policyholder can tie up to 100% of the policy's cash value to a stock market index,” according to Investopedia. What remains ends up in a fixed account. While similar to an investment security, these are not within the same realm and are not considered investment securities.
Variable life insurance policies include an investment component as well and are dependent on how the market performs. This type of policy does pose more of a risk and should be thoroughly explained prior to enrolling, as it entails that your family members will receive a specific amount depending on your premiums and how your investments are performing.
As you can see, there is a lot of information and preparation to know about when you start thinking about life insurance policies. California Wealth Transitions is happy to help you understand each of these policies and what they entail. To speak with a financial advisor, schedule a call today!