A Straightforward Guide to the Different Types of Life Insurance
Many people overestimate the cost of life insurance. In fact, half of Americans overestimate the cost of term life coverage by three times more than its actual cost. In truth, life insurance is an affordable safety net for many people.
But if you are considering purchasing a policy, you might become overwhelmed with the options. Let’s take a look at the different types of life insurance so you can make the best choice for yourself and your loved ones.
What Is Life Insurance?
Life insurance is a form of insurance that protects you and your loved ones when you pass away. It provides a safety net to cover any financial needs of those you will leave behind.
In general, life insurance falls into two categories, term life insurance and permanent life insurance. Term life insurance policies are valid for a certain number of years. If the policyholder doesn’t die during the specified time frame, the policy expires and there is no payout.
Permanent life insurance policies last for your entire life. In addition, they include a cash value portion that you can withdraw or borrow against.
Term Life Insurance
Term life insurance is a popular option and is a good choice for many people. It is sold in varying lengths of coverage with coverage amounts that also vary. Term life insurance is usually the cheapest option, but will not cover you if you outlive your policy.
In this case, you might want to get another policy after your old policy expires. It is important to note that as you get older and if your health changes, you may face higher insurance premiums than before.
Whole Life Insurance
Whole life is another popular type of life insurance. This type usually lasts until your death, assuming you pay the premiums. Premiums usually stay the same, the death benefit doesn’t change, and you can get a guaranteed rate of return on the cash value.
When comparing term vs whole life insurance, it’s important to note that whole life is usually more expensive. However, it is an option that will cover you for your entire life.
Universal Life Insurance
Universal life insurance is a type of permanent life insurance. With this type, you’ll be covered for the rest of your life as long as you pay the premium and meet any other requirements.
Like whole life insurance, you can also get a cash value component. Your beneficiaries will also get a death benefit upon your death.
The difference with universal life insurance is that there is more flexibility than with whole life insurance policies. For this reason, it is sometimes called adjustable life insurance. You can reduce or increase your death benefits and pay your premiums with more flexibility.
There are a few sub-types of universal life insurance. Guaranteed universal life insurance guarantees the death benefits and the premiums stay the same. However, there is no cash value and the premium must be paid on time or the policy is forfeited.
With an indexed universal life insurance policy, the cash value of the policy is linked to a stock market index. You might see significant gains, though the cash value may not take full advantage of the possible gains.
Variable and variable universal life insurance policies are tied to investment accounts like mutual funds or bonds. The premiums of variable life insurance policies are fixed and the death benefit is guaranteed.
However, with a universal variable life insurance policy, the premium is flexible and the death benefit is not guaranteed.
How to Choose a Life Insurance Policy
When you are choosing a life insurance policy, the best one for you will depend on what you want out of it. Term life insurance is usually adequate for people for a certain amount of time.
However, if you want something that you don’t need to worry about replacing later, whole life insurance may be a better option.
You’ll also want to consider if you want cash value from your policy. Doing so can help you turn your policy into a kind of investment that you can use later.
In addition, you need to think about your premiums. Universal life, variable life, and variable universal life insurance offer flexibility because you can adjust your premiums. Term and whole life insurance premiums are fixed and won’t change.
Depending on your situation, you should also consider your age and health. People who are young and healthy may be able to get a very affordable policy that will last them the rest of their life.
If you have health concerns, you might want to consider a policy that doesn’t require a medical exam. A guaranteed issue life insurance policy might be a good option in this case.
Benefits of Life Insurance
Life insurance offers financial benefits for both the policyholder and their beneficiaries. Because of this, most adults should carry life insurance, especially if they have people who depend on them.
One of the biggest benefits of life insurance is the peace of mind it can give to you and your loved ones. It provides funds to cover your funeral and any financial liabilities you might leave behind. It can also help replace income and provide a safety net for your loved ones.
The lump-sum death benefits are tax-free, so your beneficiaries don’t need to pay taxes on them.
With some types of life insurance policies, you can even build wealth over time. Your premium is invested to build cash value that you can withdraw or borrow. This can be a good way for some people to supplement their income during retirement.
Some policies may come with optional riders that can help you in the event of a chronic or terminal illness. These can help you access funds to pay for care while you are still alive, giving further peace of mind during a difficult situation.
Know the Differences between Types of Life Insurance
Knowing the differences between different types of life insurance can help ensure that you choose the best life insurance policy for you. Determining what factors are the most important for your situation can help you make a good decision.
Contact redacted Insurance to get a quote for your new life insurance policy.
Photo by Bonnie Kittle on Unsplash
