Term Life Insurance provides death protection for a stated time period or term for a specified premium. It is usually considered the simplest form of life insurance. It was developed to provide life insurance for a limited period of time, for an inexpensive rate. Since term insurance can be purchased in large amounts for an inexpensive premium, it is well suited for short-range goals, such as to cover loans or income replacement during child-raising years.
Universal life insurance offers death benefit protection but also has a savings element that is invested and can provide a cash value build-up. The death benefit, cash value build-up, and premiums can be reviewed over time and can be changed to meet the policy owner’s needs if desired. Universal Life was built to give the policy owner flexibility with their policy.
Whole life provides insurance for the insured’s whole life as long as a specified premium is paid. It also has a savings component that builds over time and can be used in wealth accumulation. The insurance company essentially makes all the decisions regarding the policy. Regular premiums both pay insurance costs and cause equity to build in the savings account. A fixed death benefit is paid to the beneficiary along with the balance of the savings account.
Indexed universal life is very much like regular universal life, however, instead of a declared interest rate, the actual rate earned is tied to a calculation against different stock market indices. It does provide a floor by way of a minimum interest rate. This allows for the policy owner to share in some of the upsides of these markets without the downturns.
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