There are three types of life insurance, with many differences between them, but boiled down the term, whole and universal plans do the same thing — they payout a set amount of money to someone when you die.
Term Life Insurance: This feature is engaged toward younger folks as a result of it’s additional of a brief set up that solely covers you for an amount of your time, usually 10, 20 or 30 years. If you were to stop living within that timeframe, a set amount of money would go to the people/person you choose.
Whole Life Insurance: It has the same concept as a term, but this policy is forever (or until you die). It also has a bell and a whistle.
- The bell: It has a savings account that accrues money. Eventually (if you continue to not die), it will hit the policy’s coverage amount. At that point, the insurer will say something like:
“Hey, so you have the same amount of cash in your savings as what we would payout, so, you don’t need us anymore. Here’s your money. Good luck not dying and stuff.”
- The whistle: Whatever cash you accrue, you can borrow, but to no surprise, you’ll eventually have to pay it back to continue coverage.
Don’t freak out if you’re not entirely clear on the variations between term and whole.
Universal Life Insurance: It’s heaps just like the whole set up however with a shinier bell and 2 whistles.
- Shinier bell: Instead of a standard savings account, this also accrues interest.
- Whistle 1: You can kick in more money than your payment to take advantage of the interest.
- Whistle 2: Not only can you borrow from this account, but you can also skip payments without a penalty (as long as the account has money in it).