Which Type of Life Insurance Policy Is Best for You?

When you start planning for what you leave behind for your family after you are gone, you have a few options. Picking which type of life insurance to use relies on a mixture of your current financial situation and projecting how it could play out into the future. Simultaneously, multiple life insurance types are available on the market that looks similar, such as whole life and universal life insurance. However, once you begin diving into the details, the differences become more apparent. Working with wealth accumulation experts can help you determine which type of life insurance works best for your situation. 

Whole Life Insurance

Whole life insurance covers the entirety of the insured’s life from the beginning of the policy until their death. This type of “traditional” or “permanent” policy features a savings component that helps boost the amount paid out to the beneficiaries in the form of the death benefit. For the policy to pay out in full, the policy will have had to keep up with paying the premium payments until their death. For the beneficiaries, the death benefit and the savings component combine to provide a financial payout that can help fund additional expenses and still have some leftover to assist in the long run. 

The guaranteed death benefit and the savings cash value provide your beneficiaries’ financial safety net after your death. As you continue to make payments on the premiums, and the cash value continues to gain interest, your life insurance policy will continue to grow in value. The death benefit is usually a predetermined amount in the initial contract, where the cash value offers policyholders an outlet to increase the amount they leave behind for their beneficiaries. 

Universal Life Insurance

Similar to whole life insurance, a universal life insurance plan is considered permanent. The policy will cover the insured for the duration of their life as long as premiums remain current. Your beneficiaries will receive a Death Benefit, completely tax-free, upon your death. Depending on your policy, a cash value component is included. This value can grow over time and build that additional value tax-free. You can withdraw or take a loan against the accumulated cash value. If you pass away before paying off any loans or withdrawals against the cash value, then that remaining balance will be taken out of the death benefit payout. 

You can also attach riders to your policy to provide you with additional sources of coverage and benefits for a corresponding premium. These riders can help make the money more accessible, such as the death benefit rider. In particular, this rider allows you to access a portion of your death benefit should you be diagnosed with a terminal illness. Riders like these help to make your universal life insurance truly work for you and your family. 

Term Life Insurance

Term life insurance consists of a guaranteed payment of an established death benefit should the insured person die within a specified term. Your beneficiaries will receive only the death benefit’s value; term life insurance does not boast a savings component such as a whole life insurance policy. If you live through the policy’s stated term, you can either; renew it for another term, make it permanent, or let it lapse.

Term life insurance provides affordable life insurance with greater flexibility concerning how long you want the policy. That flexibility does come with the drawback of not having a clear path towards growing the death benefit payout over time. 

Variable Life Insurance

Variable life insurance is a permanent life insurance policy with the greatest chance to see the cash value component grow. Still, it does come with a more significant risk factor than other policies. You choose from a variety of sub-accounts that operate similarly to mutual funds. As the sub-accounts grow and accrue value, so does your policy’s investment component. Conversely, you must also consider the stock market risk with a variable life insurance policy. If your sub-accounts do not perform and see their value drop, so may the policy’s cash value. If you can handle the additional risk that the variable life insurance policy presents, the potential benefits can be advantageous for policyholders. 

Variable Universal Life Insurance

A variable universal life insurance policy combines the flexible premium pricing of a universal life policy and the cash value investment options found in variable life insurance. The resulting policy features your beneficiaries receiving a death benefit and cash benefit funded through the premiums you pay. As the investments associated with your account grows, so does that cash value. Like variable life insurance, your cash value, premiums, and death benefit can fluctuate based on stock market performance, so being comfortable with that high degree of risk and volatility is a must for anyone considering a variable universal life insurance policy. However, with that risk comes the potential for greater reward since the variable universal life policy has some of the most significant possibilities for growth of the market’s policy options. 

Which Policy Option is Right for Me?

Every person’s financial situation is different, so determining which type of policy works best for you requires research and planning. Knowing and understanding the amount of risk associated with each policy and how much risk you can tolerate will go a long way towards deciding which policy is best for you and your beneficiaries. For those looking for zero to minimal risks and a set death benefit, policies such as term and whole life insurance may be the way to go. For people who can stomach a bit more risk for the potential greater cash value, then universal, variable life, and variable universal life insurance can potentially be your answer.

To truly understand all of your options’ full financial implications, having an experienced financial advisor like those found at Preservation Wealth Management will help you in the long run. Our team can help you sift through your financial options and help you determine the best path forward for helping your beneficiaries after you are gone. 

Ready for a meeting with a life insurance consultant? Contact Preservation Wealth Management today!

Leave a Comment

Ready to Take The Next Step?

For more information about any of our products and services, schedule a meeting today or register to attend a seminar.

Or give us a call at 610.768.7789.