Have you considered buying a life insurance policy to protect your family?
If so, you’re likely overwhelmed with the different types of life insurance policies available to you. You aren’t sure which is the best life insurance policy that’ll work for your situation.
You should always consult a financial advisor to help you make your decision. However, in the meantime, you want to garner a basic understanding of the types of life insurance available.
Here’s what you need to know:
Term Life Insurance
As a general rule, term life insurance is more affordable than most types of life insurance.
Term life insurance is only active during a specified period and doesn’t bring in any cash earnings. It’s also possible to pay the same premium during the term period.
These are the major advantages of term life insurance. But what are the major disadvantages of term life insurance?
One reason why many families put off term life insurance is that it doesn’t work like a savings account. It doesn’t add extra cash that’ll help your heirs pay off expenses after your death.
Another major disadvantage is that the term life insurance doesn’t pay out if the term expires. Let’s suppose you buy a 5-year term life insurance policy but you die in the sixth year. Your heirs won’t receive the death benefit.
As such, you want to only consider term life insurance if the other options aren’t feasible.
Universal Life Insurance
Universal whole life insurance allows for greater flexibility. You can increase the death benefit as you wish.
You can also use the money as often as you wish. However, the life insurance policy ends if the money gets used up. The freedom that comes with universal life insurance is excellent, but it might not be advisable if you don’t have a steady cash flow.
Whole Life Insurance
The most popular type of life insurance is whole life insurance, which is a form of permanent life insurance.
The death benefit gets paid out to your heirs after your passing. Your responsibility is to pay an agreed-upon premium in regular installments during your lifetime.
While you pay premiums, the whole life insurance policy invests your money. This helps you generate more income that can benefit your heirs after you die.
Whole life insurance works like a savings account that generates interest. You can withdraw money from your policy during your lifetime. As such, this is arguably one of the best life insurance policies that most families will want to consider.
The major disadvantage is that the premiums are higher and consistent. You’ll also have to look into potential paid-up additions that you might incur from a whole life insurance policy.
The major advantage, however, is that a whole life insurance policy never expires. It only ends if you choose to cancel the policy. As you age, the benefits of the whole life insurance policy increase. If you have the money to afford a whole life insurance policy, you might wish to consider this as a means to protect your family after your death.
Now let’s look at the two main types of whole life insurance so you can determine which is best for your needs.
Traditional Whole Life Insurance
With traditional whole life insurance, the premium and death benefit remains constant.
In the beginning, the policy provider will charge a high premium. But as you age, the benefits increase so it balances out the premium. The premium payments get invested by the provider.
Variable Whole Life Insurance
This type of whole life insurance combines a savings account with the death benefit that gets paid to your heirs.
With this option, the policyholder gets to choose how they’ll like to invest their money. They can choose a money market option for investing their earnings.
This is a riskier option as the policyholder can lose their savings from the money market account. It’s only advisable if you have extensive experience with financial investing.
These are the most popular types of life insurance policies. Now let’s look at lesser-known options that might work for your needs.
Guaranteed Life Insurance
This life insurance policy lets you sign up without needing to fill out a health questionnaire or take a medical test.
This is a great option for elderly applicants. As an elderly applicant, you might already have a few serious health issues. This can prevent you from eligibility for a life insurance policy.
You’ll only have to prove that you can pay the monthly premium payments. If you’re a younger policyholder, this is a life insurance policy that you can most likely skip.*
*The one exception is if you have serious health issues as a younger person.
Guaranteed life insurance won’t always give you the best death benefits but it’s worth it if you aren’t eligible for other policies.
Simplified Issue Life Insurance
Most life insurance policies require the applicant to take a medical exam to qualify. With a simplified issue life insurance policy, you only have to fill out a health questionnaire. You’ll also have to answer questions so the provider can assess your likelihood of impending death.
This type of life insurance policy has higher premiums. As such, it’s not ideal for most policyholders. However, if you aren’t comfortable with taking a medical exam then this is a great option.
Final Expense Insurance
This type of life insurance focuses mainly on seniors or anyone toward the end of their life.
It focuses mainly on covering funeral costs and other expenses after your death. It’s not the best for passing on funds to your heirs but it’s a great way to ease their financial burdens.
These Are the Different Types of Life Insurance Policies
Now that you know the different types of life insurance policies you can determine which is the best option for your family.
For most policyholders, a whole life insurance option gives the best benefits. If you can’t meet the financial obligations, then you can consider universal life insurance or term life insurance.
Depending on your situation, you might find it easier to use some of the lesser-known life insurance policies. These are easier to qualify for and offer the basic benefits for your family.
You can learn even more about the types of life insurance policies on our blog.