The following is my answer to a Quora
question: “Which
is better life insurance: whole life, indexed universal life, or variable
universal life?”
Whole life policy provides coverage for
your whole life, taken to be either age 100 years, or 101 years. The sum assured is determined at inception,
and is guaranteed to pay out upon your death, or if you have the riders, for
disability and critical illness. These
policies have a cash value that builds up over time. The policy is in force as long as the premiums
are paid. The coverage may be varied at
the policy owner’s request, which may require further underwriting.
An indexed universal life policy allows
the policy owner to allocate cash value amounts to either a fixed account, or
an equity index account, the participating fund. It is a variation of a whole life policy, and
is identical in all other areas.
A variable universal life policy builds a
cash value. This cash value can be
invested in a wide variety of funds, which the policy owner may choose from. It is also known as an investment-linked plan.
A base whole life policy is the standard
plan. An indexed life policy gives you
the option of building up cash value, treating the policy as a financial
instrument, and not just a policy. It is
useful for varying your coverage according to your needs since some polices
allow you the option of withdrawing the index fund portion, while still
maintaining some level of coverage. The
investment-linked plan is useful in fund movements since you may top up, and
withdraw funds, at any time. The
premiums may be more expensive than a whole life policy since there is an
investment aspect to build the cash value in addition to the mortality charge.
These polices have different uses
depending on the needs of the policy owner, and many people have more than one
type. The preference for these and other
types of policies is dependent on many factors that the financial health review
is supposed to establish, from your risk profile, to age, to coverage to
investment horizon.
No comments:
Post a Comment
Thank you for taking the time to share our thoughts. Once approved, your comments will be poster.