By Dez Duran-Lamanilao

Image source: Vela Point

One of the reasons why some people find it difficult to decide whether investing in life insurance is a wise move or not is due to lack of basic understanding of the different types of life insurance. Let us clarify the most common issues that every individual may have about insurance.

Generally, there are two types of life insurance: term and permanent life insurance. In term insurance (also known as pure life cover), the policyholder pays for a level premium for an agreed length of time, such as 10 or 20 years and sometimes even longer. If the insured dies within the tenure period, the insurance company will pay for a death benefit. Otherwise, there is no payout if the insured manages to survive the tenure.

Depending on the individual’s needs and preferences, either type of insurance can provide you the financial security that you need for you and your family. Here we will focus on the permanent life insurance policy.

Aside from death benefit, permanent life insurance offers an opportunity for cash savings, which you can use for retirement or other purposes. Note that this means higher premiums than term insurance. Below are the types of permanent life insurance policies:

  1. Whole Life – the most basic type of permanent insurance policy; features a death benefit together with a savings account
  2. Universal Life – offers more flexibility; you can increase the death benefit if you pass a medical examination; the policy’s cash value is also tax-deferred
  3. Variable Life – features death protection with a savings account that you can also use to invest in other opportunities, including stocks, bonds and money market mutual funds
  4. Variable-Universal Life – combines the features of variable and universal life policies; poses more financial risk but offers bigger potential for greater financial rewards

Investing in permanent life insurance requires some serious thinking mainly because of the higher premiums that you will be paying. Furthermore, permanent life insurance policies last for as long as you pay their premiums.

Statistics show that policyholders tend to end up dropping their whole life policy within the first ten years. To avoid this from happening, talk to your insurance provider in detail and ask them to explain to you everything there is to know about the policy they are offering. Protect yourself from the start. Be an informed buyer.