Life insurance comparisons? Let's face it, it can be a mundane analysis. Needing life insurance is as important as needing a drivers license. But comparing life insurance plans is like taking a trip to the DMV.
Hopefully, I can simplify this process for you so you can make a better decision on what type of insurance plan is right for you.
Think of Term, Whole Life, Universal Life, and Variable Life as vehicles.
This process will make these life insurance comparisons easier when you visualize these cars as the particular plans.
Term insurance is like an economy car because it's cheap. This is the number one reason why people purchase it. Premiums are low.
You receive only one benefit: The Death Benefit. And, it only pays out when you die. Some dub this type of policy as Death Insurance.
Whole life insurance is the polar opposite of term insurance. This is why I see this type of policy as the luxury vehicle.
When you analyze term vs whole life insurance premiums, whole life premiums are high, sometimes 10 times the cost of term insurance. Not surprisingly, this is the number one reason why people do not purchase whole life insurance.
But, there are much more benefits with this type of policy than a term policy:
These, along with other advantages of whole life insurance insurance, give these type of policies that luxury status. The question is, are you willing to pay for it?
This type of policy sort of falls in between term insurance and whole life insurance, giving it its label as the mid-size car.
Premiums are higher than term policies but lower than whole life policies. You get greater flexibility with your premium payments which can help when you need budget help.
One of the great disadvantages is that there are no dividend payments that whole life insurance policy holders receive.
The interest rate, which is paid on the cash value of the annuity portion of the policy, changes annually or semi-annually. When the interest rate declines, you risk lapsing the policy. Also, the death benefit can decline if you choose to pay lower premiums.
This type of policy is a combination of term insurance and an annuity.
I see variable life insurance like your first car as a teenager. One day you're impressing all the girls with your car. The next day the AC won't work and the left blinker won't turn off.
This up-and-down type of car fits the mold of variable life insurance because you have a choice of how to invest the cash value in variable life insurance: mutual funds.
Like your car as a teen, the stock market goes up and down. You have the ability to increase your cash value more than a universal or whole life policy.
However, this type of volatility puts that cash at risk. You must take a policy loan to get the cash out. If you do and the stock market dips at the same time, you may lose death benefits or experience premium "calls".
Another disadvantage: no dividend payments.
Life insurance comparisons can be confusing. Are you going for cost or benefits? Are you going for short term or long term? Are you risky or searching for wealth without risk?
Whichever you choose, your policies should be in line with your entire plan.
If you ask me, I'd point you to the luxury car: whole life insurance.
Most people say, "Why? It's expensive!" What most don't realize is that this type of insurance can save you money...and this vehicle can actually get you to where you want to be.
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