3. Universal Life Insurance
Universal life insurance is a flexible policy that allows policyholders to adjust their premiums and death benefits over time. It also includes a cash value component, which earns interest based on prevailing market rates.
Pros:
- Flexible premium and death benefit options.
- Cash value grows tax-deferred and can be used to pay premiums.
Cons:
- Higher premiums and complexity compared to term life insurance.
- Cash value growth may be lower than expected if interest rates decline.
4. Variable Life Insurance
Variable life insurance combines a death benefit with investment options. Policyholders can allocate their premiums among various investment accounts, such as stocks, bonds, and mutual funds. The policy’s cash value and death benefit fluctuate based on the performance of these investments.
Pros:
- Potential for significant cash value growth.
- Flexibility in investment choices.
Cons:
- Investment risk is borne by the policyholder.
- Higher fees and premiums compared to other types of life insurance.
5. Indexed Universal Life Insurance (IUL)
Indexed universal life insurance is a variation of universal life insurance, where the cash value is tied to a stock market index, such as the S&P 500. Policyholders can benefit from market gains while being protected from losses, thanks to a guaranteed minimum return.
Pros:
- Potential for higher returns than traditional universal life insurance.
- Downside protection with a guaranteed minimum interest rate.
Cons:
- Complex structure with caps on gains and fees.
- Returns may not always match those of direct stock market investments.
6. Final Expense Insurance
Final expense insurance, also known as burial insurance, is a type of whole life insurance designed to cover end-of-life expenses, such as funeral costs and medical bills. It typically has a smaller death benefit and lower premiums.
