Choosing the right life insurance policy for you is a big decision. You want to properly protect your family, and there are so many life insurance policies to choose from! A good place to start, though, is with the most popular types of life insurance: permanent and term life insurance policies. Of those two, permanent life insurance policies offer you lifetime protection, and have a cash value that builds over time, making them a great choice for many people.
If you’ve decided that a permanent life insurance policy is the right way to go for you, you will still need to narrow down your options. For example, there are two main types of permanent life insurance policies to choose from: whole and universal. If you are considering a permanent life insurance policy, understanding the similarities and differences between these two policies can help you make the right choice.
Whole Life Insurance
This type of life insurance policy is the most common type of permanent life insurance. Whole life policies have a fixed premium, which means your premium payments will remain the same for the life of the policy. In addition, your cash value will continue to grow at a steady rate, and once you meet a minimum required cash value, you can borrow against it, similar to taking out a loan.
The benefits of whole life insurance include:
- Peace of mind throughout your whole life, as long as you pay your premiums.
- You can borrow against your cash value if you need money.
- Your family will get a guaranteed death benefit that will not fluctuate.
- Because premiums don’t change, your payments will be easy to budget for.
- Any cash value growth is tax-deferred.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance that you should look into if you’re considering a permanent life insurance policy. With this type of policy, your monthly premiums are divided between maintaining your death benefit and growing your cash-value account. The insurer will set a minimum premium and if you choose to pay more, that money will go towards helping your cash value grow faster. In addition, your insurer will set a minimum interest rate when you purchase your policy, and your cash value will grow based on current interest rates. Your interest rate can go up and down based on the market, but it will never go below the minimum rate.
The great thing about universal life insurance is that it offers more flexibility than most types of policies. For example, you have the flexibility to adjust how much you pay for your premiums by accessing some of your built-up cash value: after your cash value grows to a certain amount, you can use it to pay premiums, or you can leave it alone to continue to grow. You also have more options with universal life than with whole life insurance: for example, you can choose a level premium and death benefit, meaning your payments won’t change, or you can choose an adjustable plan, allowing you to raise or lower your premiums.
The benefits of universal life include:
- You can skip premium payments if you have enough cash value built up to cover your payments.
- You’ll have the flexibility to change your premiums and death benefit if you cannot afford your premiums.
- Your cash value can grow faster if interest rates are high, and any interest you earn from your cash value will not be taxed until you withdraw it.
Which Should You Choose?
When trying to choose between whole life insurance and universal life insurance, there are some things to consider. Specifically:
- Would you like flexibility or to stick to a set monthly budget?– Whole life insurance premiums stay the same, but universal life insurance premiums can change.
- The earning potential of your policy– Universal life insurance premiums are less expensive than those of whole life insurance, because you take a higher risk with your interest rate, and might earn less in interest than with a whole life insurance policy.
- Are your finances secure? If you have a set budget and can afford whole life insurance, it might be a great fit. However, if you need flexibility in case your life changes and you need to make cuts, universal life is great because you can adjust your premiums.
Both policies offer you and your family protection for your whole lifetime, and both have their own set of unique features and benefits. Finding the right permanent life insurance policy comes down to your financial situation and your family’s needs. If you are looking for more flexibility, a universal life insurance plan is best for you, but if you would like to stick to routine monthly premiums that you can budget for, whole life insurance is best. Or, if you would rather stick to a fixed interest rate and a set death benefit, rather than taking your chances on how well the market is doing, you’ll want to stick with whole life.
The best way to find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.