There are Many Types of Whole Life Insurance
We’re talking about the types of Whole Life Insurance policies here … the kind that stays with you until you stop paying (or maybe a little after) or die. Most Whole Life policies have some sort of savings plan attached.
Standard Whole Life
Standard Whole Life, sometimes called Ordinary Life, is the most common and easiest to understand of the Whole Life family. It combines a savings account with a death benefit to keep your payments and benefits from changing throughout your lifetime. In your younger years when your insurance risk is lower, some goes towards insurance and the rest goes into the savings portions to help pay the insurance part when you are older. This savings portion can sometimes be borrowed as Cash Value.
Universal or Adjustable Life
Universal or Adjustable Life is a modified Standard Whole Life that offers some flexibility. The savings account part of the policy may be invested in a money market type account that may earn a better return than the standard account (or may not). As the money has accumulated, you have the option of “adjusting” your payments to raise or lower your payments. Lowering, or even skipping payments sounds great, but keep in mind that it’s your own money that you’re using, and there may not be enough there for later years.
Variable Life Insurance
Variable Life Insurance is a type of permanent life insurance that provides death benefits and a cash value component. Unlike traditional life insurance, the cash value of a variable life insurance policy is invested in a range of securities such as stocks, bonds, and mutual funds.
The cash value of the policy can increase or decrease based on the performance of the underlying investments. Policyholders have the ability to select the investment options for their policy, making variable life insurance a type of “customizable” life insurance. However, because the cash value is linked to the performance of the investments, variable life insurance can be riskier than traditional whole life insurance.
It’s important to note that variable life insurance policies are subject to market risk and policyholders could lose some or all of the money they have invested. Additionally, variable life insurance typically carries higher fees and charges compared to traditional life insurance.
Variable Universal Life
Variable Universal Life (VUL) insurance is a type of permanent life insurance that combines the features of both whole life insurance and variable life insurance. Like whole life insurance, VUL provides a death benefit that is guaranteed for the life of the policyholder. But, like variable life insurance, VUL also has a cash value component that is invested in a range of securities such as stocks, bonds, and mutual funds.
The cash value of a VUL policy can increase or decrease based on the performance of the underlying investments. Policyholders have the ability to select the investment options for their policy, making VUL a type of “customizable” life insurance. However, because the cash value is linked to the performance of the investments, VUL can be riskier than traditional whole life insurance.