There are four types of Life Insurance: Term, Fixed, Indexed and Variable. Each type is subject to some risk. This blog explores and compares the risk associated with each type, for you to be better able to make a sound decision when it comes to Life Insurance.
As discussed in previous articles, there are four types of life insurance, each serving a different purpose. When choosing what type of life insurance to get, it is important to assess the risk of each type of policy and how that risk fits your personal situation.
Term and Fixed life insurance policies are extremely low risk. You know more or less exactly what you are paying for up front when purchasing the policy. In Term, you are quoted a fixed premium to pay for the duration of your policy. Unless you wish to extend your insurance once the term is over, premiums are fixed and agreed upon at the time the policy is issued.
For Fixed life insurance policies, risk depends on whether the policy is a Whole Life policy or a Universal Life policy. Whole Life policies are much like Term insurance in that you know exactly what you are to pay for each year of the policy contract. Universal Life typically features a flexible premium, allowing you to increase and decrease your premium payment according to your desires. Universal Life also has changing interest rates depending on the current interest environment in the overall economy. Because the returns are based off the interest rate environment in the economy, Universal Life does have a little more risk than Whole Life policies. However, risk in Universal Life policies is still minimal.
Indexed policies can vary in risk depending on whether you add on certain riders or not. However, with the 0% floor protecting the cash value within a policy, Indexed life insurance is generally low risk as well. You can add return of premium riders or surrender value enhancement riders to keep access to if not all, but at least the majority of the premiums you paid into the contract.
Variable life insurance is the black sheep when it comes to risk in life insurance. As Variable life insurance acts very similar to mutual funds, there is 100% risk of loss. Because of this, if you allocate your premiums in a poorly performing strategy, or during turbulent economic times, then you may in fact lose significant amounts of the premiums you have paid towards a policy. And if the balance falls too low, you may need to pay additional premium to keep the policy in force.

To sum it all up, when looking for life insurance, make sure you understand your situation and your risk tolerance. If you need help, we would be more than happy to assess your situation.
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