Insurance 101: Decide on the Type of Insurance Product Based on Accounted Need

A lot of insurance products are out there, with varying modes and periods of payment and premiums. But the two basic types of insurance you need to understand are term insurance and cash value.

Term Insurance: Here, you pay for the coverage on a specified time, and if you die within that time, your survivors get the benefits. Term policies do not build cash values, but there are types like a term convertible policy, which can be changed to whole life policy without a physical exam and is a good option for individuals who are aged 40 and below.

Cash Value. Aside from receiving the death benefit, the cash value is redeemable. Most common types are whole life or universal life.

• Whole Life: A life insurance policy that keeps you covered until your death as long as you keep paying the premium. The premium you pay will be greater than the term policy if you are still young, but decreases as you grow older, and goes directly to the cash value of your policy. You can borrow against your cash value, which is tax deferred and grows at a fixed rate.
• Universal Life: The amount of your premium, which you could vary from month to month, is credited to your cash value. You can borrow partially without putting your coverage at risk, but if your premium payments fall too low, your policy may lapse.

TIP: If a family is young and income is not yet ideal, it is recommended that the breadwinner gets covered first by less expensive products such as whole life or term.

Annual premiums are always cheaper. Usually, single pay policies cost less in the sense that you have advanced all your payments. However, single pay policies, because of cost, can only buy small coverage.

On the contrary, whole life insurance cannot finance a child's education because earnings such as cash value and dividends are lower. But combined with an investment portfolio, there is assured cash for the continuation of the family's income and children's education if the insured dies or is permanently disabled.