Understanding your need for life insurance is only half the battle. Understanding what type you need is even more difficult. Here are some tidbits that might help you make your choice.

Life Insurance 101

Life insurance allows your loved ones to get a payout in the event of your death. It helps to cover funeral expenses, settle your debts, and replace the income that goes away because you’re no longer alive to work.

Each life insurance policy (or contract) has a premium (or monthly payment.) The collective premiums paid by all policyholders are invested by insurance companies to earn both the company and policyholders more income.

Universal Life Insurance

Universal life insurance allows the policyholder to change the monthly premium. The money is invested in the stock market, and there’s a high chance of making even more than the payout.

The money made from investing the premium can be withdrawn at any time. It can even be used to pay the premium. Of course, withdrawals decrease the payout. Some say that this is better for older people because they can decrease the premium. As a person ages, less of a payout is necessary to replace the income they would have made.

Whole Life Insurance

Things are simpler with whole life insurance. Your monthly premium and your payout are both established at the beginning of the policy, and they never change. These policies are invested, but they are never invested in the stock market. Some say that this insurance is better for younger people because it will give their loved ones a set amount of money.

There are other types of life insurance policies. It’s helpful to consult with an insurance agent or financial advisor to make sure the life insurance you choose is best for your situation.