What are the Different Types of Life Insurance Available?
“What type of life insurance policy is best for me and my family’s needs?”— this is a common question and one that can seem overwhelming because of the many different kinds of life insurance products. Life insurance helps to cover funeral costs, income replacement, and additional final expenses for a policy holder’s end of life. In this post, we will go over the primary types of life insurance so you can make the most informed decision possible and offer some peace of mind. But first, what are the different types of life insurance?
What are the Different Types of Life Insurance?
Term-Life Insurance
Term-life insurance is the one you’ve likely heard the most about. Term insurance is commonly sold in terms of one, five, 10, 15, 20, 25, or 30 years. Coverage amounts will vary per policy but can go into the millions.
Pros: Term-life insurance is the most affordable option for people with short-debt debts or who are looking for coverage for a brief period.
Cons: If you outlive your policy, your beneficiaries will not be granted access to the policy payout.
Whole Life Insurance
This kind of insurance lasts until death, as long as you continue paying the premiums. Whole life insurance is as close as you can get to a “set it and forget it” policy. Generally, premiums stay the same, there’s a guaranteed rate of return on the policy’s cash value, and the death benefit amount will not change.
Pros: Whole life insurance covers you for your entire life and builds cash value.
Cons: Whole life insurance is generally more expensive than term life and other life insurance policies.
Universal Life Insurance
This kind of life insurance provides a guaranteed death benefit and premiums that don’t change. However, there’s commonly little, or no cash value within the policy, and on-time payments are required. You can choose what age you want the death benefit guaranteed until, like 95 or 100.
Pros: Because of the minimal cash value, universal life insurance policies are cheaper than whole life and other policy types.
Cons: If you miss one payment, your entire policy may be forfeited. Since there’s no cash value in the policy, you would walk away with nothing in that scenario.
Indexed Universal Life Insurance
This kind of life insurance links the policy’s cash value parts to a stock market index such as the S&P 500. Gains are determined by a formula that will be outlined in your policy.
Pros: You have access to cash value that grows over time. You will likely see considerable gains if the stock market does well. Your payments and death benefit amount are quite flexible as well.
Cons: Because of investment caps, the cash value cannot take full advantage of any stock market gains. Additionally, these policies often require more work than term or whole life policies because the investments need to be monitored.
Variable and Variable Universal Life Insurance
Variable life and variable universal life insurance policy’s cash value is tied to investment accounts, including bonds and mutual funds. Variable life insurance premiums are usually fixed with a guaranteed death benefit, regardless of how the stock market is performing. On the other hand, variable universal life insurance premiums can’t be adjusted, nor is the death benefit guaranteed.
Pros: These policies have the potential for considerable gains if your investments perform well. You also have access to partial withdrawals from the cash value, or you can borrow against it.
Cons: These policies require you to be hands-on in the way you manage your policy because the cash value can change daily with the stock market.
Life insurance offers financial security to your family members and loved ones in the event of your passing. It also offers financial protection to you should a spouse or family member pass away. Your life insurance needs are determined by your medical history and additional variables so it’s important to know the best coverage options for your specific situation. Now that you have a general understanding of the differences, pros, and cons of the primary life insurance policies, this can help you determine the best option in accordance with your financial needs. Should you have additional questions regarding types of policies, coverage amount, or basic life insurance coverage, please feel free to reach out to us for a life insurance quote or any additional questions. Follow us on Facebook for more insurance-related advice and tips, or email us at [email protected] with any questions you may have.
