Life is very uncertain, and we never know when the inevitable will happen. Death is imminent, but no one ever likes to think about it and no one knows when or how it will occur. But when it does, you can lessen the load on your loved ones, at least minimally, by ensuring they can get through the loss without having to worry about money.
Life insurance policies are a tool that can help reduce the financial burden on your loved ones upon your passing. From covering funeral costs to ensuring that your dependents can continue paying the bills if you die unexpectedly, life insurances have one thing in common – they’re designed to deliver a death benefit to your beneficiaries, usually your spouse and children.
If you’re hunting for life insurance policies, you may be confused about which one to get because there are so many options. While having a wide range of choice is a good thing, you will also have to take the time to understand the options before deciding on a life insurance policy that suits your requirements.
Let’s quickly dive into the different types of life insurance policies available.
Term Life Insurance
Term life insurance policies last for a set period, usually 10, 20, or 30 years. The policy expires once the term ends, and you can choose the length of the term when purchasing the policy. Some insurance companies also offer the option of renewing coverage at the end of the term.
Term insurance doesn’t have the cash value aspect; it’s simply insurance. This means that you will not get a payout if you outlive the policy. Therefore, it’s also cheaper and simpler than other life insurance policies. It’s a good option for those who need life insurance for a set period and are not interested in a cash value feature. For instance, term life insurance would be ideal for parents who want to get coverage until their children have reached adulthood.
Whole Life Insurance
Whole life insurance is a permanent insurance policy, which means it stays in effect until your passing so long as you pay the policy’s premium. It also has a cash-value feature where earnings are at a reasonable and guaranteed rate. This money could be accessed via a withdrawal or loan. However, it could take many years to build up enough cash value.
These features make whole life insurance policies much more expensive than term life insurance. Still, they are an excellent option for those seeking permanent insurance coverage that doesn’t expire and would like to benefit from cash value with guaranteed returns.
Universal Life Insurance
Universal life insurance is another permanent cash-value insurance. But it offers more flexibility than whole life insurance wherein you can adjust the premium and death benefit per your needs. While this type of insurance also has a cash-value component that grows, it is not guaranteed.
Universal life policies are a good option for anyone looking for permanent insurance that doesn’t expire and has a better risk tolerance regarding cash value.
Variable Life
Variable life policies offer the most control over the cash-value investment. As a permanent life insurance policy, you can select from a portfolio of mutual funds or bonds to invest your cash-value funds. Compared to whole and universal life, variable life involves more significant risks but offers greater investment rewards. Moreover, the premium and death benefits are usually fixed and typically more expensive than universal and whole-life policies.
Those who want permanent insurance coverage that won’t expire will benefit from variable life insurance. If you have the resources to manage the policy’s investment portfolio, this might be your best option. If you are unsure about the best way to proceed, it would also be wise to get the assistance of a financial advisor to manage your cash-value investment portfolio.
Burial Life Insurance
When a loved one dies, the last thing someone might expect is that sending them off the right way might put them in debt, but that’s the sad reality. Burial life insurance is targeted towards older adults and people in poor health to help their families cover their funeral costs.
Like whole life insurance policies, this type of policy comes with a limited death benefit of less than $25,000. Since this policy has a guaranteed issue, it’s much easier to buy than other life insurance policies. It also has a cash-value component, but it’s not usually purchased as an investment tool because it rarely carries on for long enough to build cash value.
Mortgage Life Insurance
Mortgage life insurance is a variation of the term life policy and ensures that your family isn’t burdened by having to undertale mortgage payments following your death. It’s also a good option for those who do not want to undertake a medical exam to buy life insurance.
The death benefit and the term of this policy are tied to the balance and term of the mortgage. If the mortgage balance is paid down, the death benefit decreases accordingly in addition to the policy premium. Similar to term life insurance, this policy does not have the cash-value component either. The death benefit could be payable to the mortgage lender, and it ensures that the policy fulfills its purpose. Still, it reduces the flexibility that usually comes in a death benefit payment.
In Summary
Mentioned above are the main types of life insurance policies, but we’ve barely scratched the surface of all the available options! A few of the other common types of policies include:
- Group life insurance
- Credit life insurance
- Child insurance policies
- Supplemental insurance
- Accidental death and dismemberment insurance
- Joint life insurance
You must carefully research your options before selecting one that aligns with your requirements, budget, and reasons for wanting coverage. Be careful in choosing a death benefit, too. Since there are so many life insurance policies, each with distinct features, look into the policy’s length and terms carefully. It could be in force for a set time or remain until the end of your life. With permanent policies, you also get the cash value or savings feature. Sifting through all these options will take time, but it’s worth investing your effort in researching so you can choose one that aligns closely with your needs and those of your family.
