There are several types of life insurance policies. The more important ones are:
1. Whole Life Insurance: Whole life insurance gives guaranteed protection to your nominee. Additionally it builds a tidy, tax-deferred income base. The advantages of whole life insurance are:
-- The premium remains the same for the entire tenure. -- The insurance company is responsible for the cash value of your policy. -- You can either receive dividends from your policy or use them to reduce payments. -- You have the right to withdraw during your lifetime.
The disadvantages of whole life insurance are: -- There is no flexibility to invest in separate accounts such as money market, stock, and bond funds. -- There is no flexibility to split your money among different accounts or to move your money between accounts. -- The premiums are non-flexible -- The face amount is non-flexible.
2. Variable Life Insurance: Variable life insurance not only provides permanent protection but also the opportunity to build tax-deferred wealth by investing your money in various instruments. The advantages of variable life insurance are:
-- The death benefit in question varies with the cash value account; the more the cash value the more the benefit. -- You can borrow from the policy during your lifetime.
The disadvantages of such insurance are:
-- It offers no guarantee to the amount of cash value during your lifetime. -- You do not get premium flexibility. -- It doesn't give you face amount flexibility.
3. Universal Life Insurance: This insurance plan is a flexible one, pays a death benefit to the nominee and offers a low risk, tax-deferred cash value. You earn market rates of interest on your cash value account. The advantages of such an insurance policy are:
-- You can borrow or withdraw from the policy during your lifetime. -- It gives you premium flexibility. -- You get face amount flexibility.
The disadvantages are:
-- It doesn't offer you the account flexibility to invest in separate instruments. -- It doesn't give you the flexibility to split your money among different accounts or to move your money between accounts.
4. Universal Variable Life Insurance: This type of policy gives you more cash value features than any other insurance type; you can invest in money market, stock, and bond funds. The advantages of such an insurance policy are:
--It offers you low risk, tax -deferred cash value option. -- It offers separate accounts like stock, and bond funds, -- Gives you premium flexibility. -- Lets you withdraw or borrow from the policy during your lifetime. However, ii gives you less that the total cash value return if you withdraw in the early years.
The disadvantages are:
-- It requires the policyholder to devote time to manage the accounts. -- It doesn't work well with small premium amounts; the premium needs to cover your insurance and your various investment accounts.