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4 Common Types of Life Insurance



Millions of Americans have life insurance to help protect their families in the event the primary breadwinner suddenly dies. While the number of people with life insurance coverage is at an all-time low, for many, having a policy helps provide some valuable peace of mind that comes from knowing their spouse, children or other loved ones won’t be left burdened with a mortgage, college tuition or other hefty expenses after they are gone.

But there’s another side to life insurance that many consumers do not consider. A life insurance policy can provide solid financial benefits while the policyholder is still alive. For instance, some policies refund the amount of premiums paid if the policyholder outlives the policy. Others allow the policyholder to withdraw cash from the policy while it is in force, providing a federal income tax-free (according to current tax laws) stream of cash that can be used to invest, pay bills or just put in the bank.

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Using life insurance as an investment strategy may be a solid option even in turbulent economic times, when the stock market and other types of investing are not as reliable. Life insurance may not be an easy way to make a quick buck, but in the long run, it can outpace other types of investing that provide higher potential rewards with much more likelihood of losses.

Plus, with life insurance premiums as low as they’ve ever been, it’s cheaper than ever to buy coverage and help protect your family’s financial future.

Here’s more about the investment features of the most common types of life insurance and why a policy can be a solid and reliable investment strategy compared to other types of investing.

1. Term Life

There are many TV commercials and online offers for cheap and reliable term life insurance, but many consumers don’t know what the coverage is all about. A term life insurance policy provides coverage for a pre-defined period of time, usually from 10 to 30 years. It’s good, cheap coverage for most people, but unlike other forms of life insurance, term life does not offer cash value for the policy holder, so it’s not a good option for investing.

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2. Whole Life

Whole life insurance is the most common type of permanent insurance policy. In addition to providing cash benefits to your beneficiaries upon your death, the coverage comes with guaranteed cash value during the life of the policy. Part of each premium payment is applied to the policy’s cash-value account, which grows on a tax-deferred basis (again, based on current federal tax laws). The policyholder can withdraw the cash value as it accrues and use it as he or she sees fit.

3. Universal Life

Universal life offers even more flexibility than whole life. Universal life insurance provides a savings vehicle (cash-value account), which generally earns a guaranteed rate of interest. The policyholder can withdraw or borrow against the fund as provided for in the policy.

Universal life policies also give the policyholder the option of adjusting the amount of their death benefit or premium payments as their needs change, which can be helpful in turbulent economic times.

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4. Return of Premium

Return of premium (ROP) is a form of term life insurance that does not include cash-value features like other types of coverage, but it does have one pretty cool feature that might be of interest to some investors. An ROP policy can return an amount equal to the premiums paid during the coverage when the level premium period ends, if the policy holder is still living and has kept the policy in force.

So, if 20, 30 or even 35 years after you buy an ROP policy you are still alive, you could qualify to get back all the money you paid in monthly premiums and use that money to invest or as you see fit.

Life insurance can not only help you protect your loved ones from financial ruin in the event you suddenly die, it can also be a solid form of investing. By taking into consideration some of the investment strengths and weaknesses of life insurance coverage, you can help protect both your family’s future and your financial portfolio.

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