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The main types of life insurance include variable duration and terminal value. Learn how each type of life insurance works and which type is right for you. Life insurance whole life insurance comprehensive life insurance variable life insurance funeral or terminal expense life insurance.
There are many different types of life insurance to consider on the market but they all fall into two main categories: term life insurance and whole life insurance. The most popular type of insurance term insurance is for a limited period of time and the insurance lasts for the rest of your life.
The right policy for you will depend on your personal circumstances your unique needs the coverage you need and how much youre willing to pay for it. This guide covers the most common types of life insurance policies on the market including information on how they work their pros and cons how long they last and who they are best for.
Different Types Of Life Insurance
Term life insurance
Term life insurance as the name suggests. Coverage for a specific term or length is usually 10 to 30 years. It is sometimes called pure life insurance because unlike a whole life insurance policy it has no cash value. Its purpose is to pay your beneficiaries if you die during the term.
Most private conditions have the same premium so you pay the same amount each month. At the end of the period there is no more coverage. You will have to quit or take out new insurance at a higher price. The older you are the more expensive your insurance. However many providers allow term plans to convert to whole life insurance for either partial or full term coverage. If you have term life insurance through your employer your rates will increase over time because rates usually waive with age.
Whole life insurance
A whole life policy is the simplest form of permanent life insurance that provides coverage for your entire life. Like other permanent policies it includes a cash value component: A portion of your premium dollars is placed in a cash value account and the money grows over time on a tax-deferred basis so you pay taxes on your gains.
Cash value offers many important benefits that you can use while you are alive. It takes years to grow into a useful amount but once you can borrow money as collateral use it to pay your insurance premiums and even convert it into cash when you retire. If you buy a cash value life mutual insurance policy you can also get annual dividends. You will get a share of the insurance companys profits which can be used to increase the value of your policy and provide other benefits.
Universal Life Insurance
Universal life insurance is another form of permanent insurance that offers cash value and whole life insurance benefits. However there is one major difference from whole life insurance. That is premiums are flexible.
Universal plans allow you to raise or lower as you see fit within state boundaries. Underpaying can end up causing you to have to pay more later to be covered. These types of plans can be tailored to your living circumstances while providing the same type of cash growth and overall longevity. Having another child changing jobs or taking out a loan to buy a business are all examples where the combination of stability and flexibility becomes important.
Final expense insurance
End of life insurance is a form of life insurance that is only meant to cover end-of-life expenses such as funeral and burial expenses. The cover is permanent in the sense that the policy will remain in force if you continue to pay premiums but the policy has no cash value or investment component.
Seniors often purchase final expense coverage without dependents because it helps protect loved ones who may have to pay these expenses out of pocket. Although the premiums of this plan are modest the death benefit is also very limited – it is not intended to provide financial support to your beneficiary for years. Young healthy people who want a large cash value or death benefit for their family are likely to find more value in a whole life or universal term policy.
Simple Release Insurance and Guaranteed Release
Most life insurance policies are sealed. They require a medical exam as part of the application process so the provider can assess your risk for coverage. Medical examination is not required for short term and guarantee policies. This program is primarily for elderly applicants or those suffering from serious health conditions who may not be eligible for a policy that requires a medical examination.
Some periodic policies and most final fee policies are simple issue or guaranteed issue. When you apply for the Simple Question Policy you will be asked to complete a health questionnaire not an exam. You will not be asked to take any exams or fill out any questionnaires due to our guaranteed questions policy. No medical information is required for consent. These policies usually offer lower levels of coverage than other types and tend to be more expensive because insurance companies must take a higher risk of providing coverage.
Group life insurance
This is life insurance that you buy as part of a group. Often purchased through employment as part of an employee benefits package or through a membership organization. Most group life insurance is term insurance but some companies offer permanent insurance as a voluntary benefit (paid for by employees).
Until recently personal insurance purchased through an agent or directly from an insurance company was the most common way to purchase life insurance. More Americans are now subject to employment-based group policies. These plans offer relatively low premiums because the company or organization is effectively buying in bulk. Some employers even offer their employees long-term insurance equal to 1x their salary. The group policy also helps employees with health problems get coverage by simplifying things at least for lower coverage amounts. On the other hand the amount covered may be limited.
Group life may not offer the comprehensive coverage you want but it is an easy and affordable way to start or supplement your life insurance coverage. Find out if the policy is portable which means you can take the insurance with you if you leave your job.
