What are the types of life insurance that is best for your family’s needs? Like most people, you may only be familiar with only the two main types of life insurance: permanent life and term life. But, did you know that within these two categories, you can choose from several options that may be more suitable for your needs?
When choosing the right insurance coverage, several factors must be taken into account such as how long you need coverage, whether you want a policy that builds cash value, and how much you can pay for coverage.
Different Types of Life Insurance Policies
Life insurance can be a confusing subject, but the following information may help clear up some of the confusion. To help you make an informed decision about the type of coverage you need, let’s take a look at the different life insurance options available today:
Category 1: Term Life Insurance
A term life insurance policy is set to last for a specific number of years. If you continue living beyond the specified time frame of the policy, it will expire with no payout given. Term life policies are typically issued for term lengths of 10 to 40 years. A “level” term life policy locks in the premium so it will remain the same for the length of the term. An “annual renewable” term life policy renews yearly with a possible rate increase.
A term life policy is the cheapest form of insurance, but if you outlive the policy, your beneficiaries won’t receive a payout. With term life insurance, you have the option of converting to permanent life insurance in the future.
Category 2: Permanent Life Insurance
A permanent life insurance policy is designed to remain in force for your entire life. This type of policy provides a cash value component that you can borrow against. However, taking a loan against the cash value will decrease the amount of payout to your beneficiaries.
The different types of permanent life insurance include:
Pros:
- Lasts until your death
- Premiums remain the same
- Guaranteed rate of return on cash value
- Benefit amount doesn’t change
Cons:
- More expensive than term life insurance
Pros:
- Death benefit is guaranteed
- Premiums don’t change
- Cheaper than whole life
- You can change the death benefit as needed
Cons:
- Little to no cash value
- Missed payments could result in policy cancellation
Pros:
- Cash value is tied to investment accounts (bonds, mutual funds)
- Fixed premiums
- Guaranteed death benefit
- Potential gains if investment choices do well
Cons:
- You must be hands-on in managing the policy & investments
- Cash value can change based on the market
- Fees and administrative charges apply
Indexed Universal Life Insurance
Pros:
- Cash value is linked to a stock market index
- Builds cash value according to stock market performance
- Payments and death benefit amounts are flexible
Cons:
- Investment caps affect gains
- Requires constant monitoring
- Skipped payments can result in policy lapse
Variable Universal Life Insurance
Some insurers offer a variable universal policy. Although similar to variable life insurance, this policy provides adjustable premiums.
Other Types of Life Insurance Policies
If none of the above life insurance options are what you are looking for, you can opt for one of the following:
Simplified Issue Life Insurance
Pros:
- No medical exam required
- Instant approval
- Quick application process
Cons:
- A medical questionnaire is required
- Certain health conditions can cause you to be turned down
Guaranteed Issue Life Insurance
Pros:
- No medical exam required
- No health questions to answer
- You can’t be turned down if you’re between 40 and 85 years of age
Cons:
- Can be more expensive than other policies
- Coverage amounts are generally low
These two policies may also offer a “graded” death benefit which means beneficiaries receive only a partial payout if you die within the first few years of having the policy. This type of coverage is often chosen by people who have turned down elsewhere.
Group Life Insurance
Group life insurance is typically offered by an employer. The premiums are calculated based on the group as a whole. In some companies, basic coverage is free with the option to purchase supplemental insurance if needed.
Joint Life Insurance
A joint life insurance policy insures two people, typically spouses or domestic partners, under the same policy with the following two options:
(1) First-to-die: If the first policyholder dies, the policy expires and doesn’t extend to cover the second person listed on the policy. The surviving person must obtain their own insurance at this point.
(2) Second-to-die: Also referred to as survivorship policies. Pays out to beneficiaries if both policyholders have died.
Many people choose joint life insurance because it is more affordable than separate policies. However, not all insurance companies offer joint life insurance coverage. One disadvantage of joint policies is that it’s difficult to split the coverage if the couple should separate or divorce.
Still Confused About Life Insurance? Talk to the Experts at Sandifer Insurance
Life insurance is a great way to ensure that your family is financially secure in the event of your death. However, it is important to understand the type of life insurance that is right for you.
If you’re in the market for life insurance or have questions about your current coverage, talk to us. At Sandifer Insurance Agency, we have over 40 years of experience in the insurance field. We will be happy to recommend the best insurance coverage for your needs. You can reach us by phone, email, or online.
Sources:
- usacoverage.com/ – What is Universal LIfe Insurance?
- nerdwallet.com/ – Types of Life Insurance