Life Insurance
Posted by insurancereviews
Various Life Insurance Types − Their Advantages and Disadvantages
Life insurance can be classified into two main categories,
permanent and temporary. Permanent life insurance remains
operational until the maturity of the policy, the lapse of the
policy or the expiration of the policy. The policies lapse or expire
due to the failure of the policy owner to pay the premium in regular
course. The permanent insurance develops a cash value which reduces
the degree or risk of the insurer and consequently the cost of
insurance over the time.
The universal life, whole life, and the endowment are the three
basic forms of permanent insurance. Universal life insurance (UL) is
comparatively a new concept that has been designed to offer
permanent coverage with higher premium payment flexibility. A
typical UL incorporates cash accounts. The premiums make the cash
accounts increase. In UL you may enjoy a guaranteed minimum interest
for the fixed ULs or no minimum interest in variable ULs. However,
ULs have their own disadvantages, also, as the policies are short of
a fundamental guarantee that they will remain operational unless
enough premiums are paid, and the cash values are also not assured.
The major benefits of a whole life insurance policy are the assured
death benefits and cash values as well as the fixed annual premiums.
The cash value in the policy will not get reduced by the mortality
or the expense charges. However, the inherent inflexiblility in
paying premiums can be considered the primary disadvantage of such
policies.
In endowment policies the cash value, which is built up within the
policy, equals the face amount or death benefits at a particular
age. The endowment insurance amount is disbursed after the
particular age or period, irrespective of whether the insured person
dies or lives. However, the endowments are significantly more
expensive in terms of their premiums.
In temporary or term life insurance, a policy owner insures his/her
life for a particular term. In case of his/her death before the
specified term, the beneficiary receives the payout. However, the
policy owner receives nothing if he/she survives after the term is
over.