Life insurance is an important consideration for your family. If you are the breadwinner in your household, you want to be sure that your family can receive financial support after your passing, whether that support is meant to help them pay for your mortgage, your children’s education, or for other expenses.
There are multiple types of life insurance for you to choose from, and each has different advantages and disadvantages. You should consult with insurance and financial experts before making your choice, but we would like to illustrate some of the basic differences among the most common types of permanent life insurance: whole, universal, and variable life insurance.
- Whole Life Insurance – Whole life insurance is one type of permanent life insurance, meaning it offers coverage for the insured person for their entire life, so long as they pay their premiums on time. These premiums are fixed, and a death benefit, which will be paid to the beneficiaries upon the insured person’s passing, is guaranteed. This type of insurance builds cash value over time on a tax-deferred basis, so you don’t have to pay taxes on the growth unless you choose to withdraw money.
- Universal Life Insurance – The main difference between whole life insurance and universal life insurance is that universal allows for changes to the premiums and death benefit. It has built-in cash value that grows on a tax-deferred basis, but it involves greater risk than whole life insurance.
- Variable Life Insurance – With this type of life insurance, the cash value growth is tied to the performance of sub-accounts, such as stocks, bonds, and mutual funds. There is great potential for high returns, but it depends on the market, so variable life insurance is riskier than the other two types.