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The Different Types of Life Insurance

Young mother and baby look at a life insurance policy

August 7, 2019. If you have people who depend on your income or you want to leave your relatives a tax-free income when you die, life insurance may be something to consider. But with all the different types of policies that exist, you might be confused on which one might be best suited for you.

Term Life Insurance

In term life insurance, one pays premiums for a set period during their life to cover your dependents against lost income for specific needs. For example, you can set a 25-year term to cover your kids' education, or you can buy a policy that lasts for the duration of your mortgage loan. Should you die during these periods, the payout will ensure that your kids can finish their education or that your family can remain in their home without having to sell it to pay back the mortgage. As your health may deteriorate as you age, premiums usually increase as you go along. If you remain alive throughout the set term, the policy does not pay out at the end of the set term.

Creditor Life Insurance

When you obtain a mortgage or other large loan, your bank offers you a type of term insurance for the duration of the loan. If you die during this time, the payout goes to the financial institution.

Whole Life Insurance

In whole life insurance, one pays premiums throughout their life and the insurer provides a guaranteed payout upon your death to your beneficiaries. The premiums remain the same throughout your life and your insurance company invests them in a savings account that draws interest and from which you can draw or borrow for an early retirement, your children's education, or periods of unemployment.

Universal Life Insurance

This policy also lasts for the duration of your life and will provide your beneficiaries with the payout when you die. Your premiums also go into a savings account for cash value from which you can draw or borrow. Unlike whole life insurance, however, you have more control over the size of your premiums and death benefits. You can increase or decrease your premiums depending on the amount of money you have available, or the amount of money you feel you need to save. For example, you can work with your insurance provider to decrease your premiums as you age.

Variable Life Insurance

This is very similar to universal life insurance, except for the fact that the cash value account is invested in sub-accounts available inside the policy. You can usually decide which sub- accounts you want and grow them as you see fit.

Group Life Insurance

Group life insurance can either be term or permanent insurance, depending on which one you need. The defining aspect is the fact that one policy covers a whole group of different people, all with their own selected beneficiaries. This is usually an employer covering its employees and is cheaper than individual life insurance policies that employees will otherwise have to take out on their own.

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