Yesterday, I discussed the pros and cons of life insurance. In my mind, there aren’t too many contraindications, since we have some major expenses, such as our mortgage and our car loan. Plus, as we’re young, life insurance would replace some of the missing salary if one of us were to die unexpectedly, or even pay for our future child’s education.
There are four types of life insurance policies explained below. Of course, there are variations within these four, and vary by insurer.
Types of policies
Term Insurance: Purchased for a certain time period. Your beneficiaries are covered as long as the insurance term is still in effect when you kick the bucket.
Whole Life: Just what it says — covers your entire lifetime. You pay steady premiums, and the insurer may invest that money to increase their returns. The good insurance companies will share some of the gains with you as dividends.
Universal Life: Again, you’re covered for life, but there are investment choices to make. Pay the premium, and contribute additional funds, which the insurance company invests for you in certain areas, like mortgages and bonds. These monies (the capital and interest) go into a cash-value account, which you can leave alone or use against your premiums. Depending on the type, the cash either goes toward paying the face-value of the policy, or it is credited in addition to the policy amount. There might be higher premiums as you age for the second type.
Variable Life: Similar to universal life insurance policies, but you are allowed a greater range of investment opportunities, including stocks and money market funds.
I believe that we would want to purchase whole life insurance. If we want to invest additional cash, we can do that on our own — no need to associate it with a life insurance policy.