What Are The Different Types Of Life Insurance?
Life insurance is something that many people don’t prioritize until it’s almost too late. We get busy with the demands of adult life–career, jobs, family–and then something happens to make us question our longevity. It may be time to sign up for life insurance.
While most of us might think term life insurance is the best option, life insurance is something that should be thoroughly investigated to make sure you are getting the most bang for your buck. There are many options available, and spending some time to understand the differences between insurance types will help you choose wisely in this decision that will not only affect you, but your whole family. Here are some types of insurance, with the features of each:
The Bigwigs: Term Vs. Permanent
We may be familiar with these types of life insurance, but there are several sub-sects within each category that offer different benefits to the policy owner. Before we cover the intricacies of these policies, let’s get an overview of term vs. permanent and what they mean for you:
Term Life Insurance
Term life insurance is considered the most basic type of life insurance policy, because it awards benefits only upon the death of the policyholder. There is no build up of cash value, and after the initial term that is agreed upon when the policy is created, the policy ends. Contract length can run anywhere from 15 to 30 years, with some of the better companies offering a 1-year renewable contract option beyond the initial term. The terms of the contract and the premiums stay the same for the life of the contract. This makes it difficult for the policyholder to request additional coverage when the initial term ends, as they would have to re-qualify for coverage at an older age, with possibly a more questionable health status. In some cases it is possible to convert a term life policy over to a more permanent form of coverage.
Permanent Life Insurance
Permanent life insurance is a policy that remains in effect as long as the policyholder is still alive, and it retains cash value and in some cases, even appreciates in value. While premiums may be a bit higher, there is additional security in realizing that this type of coverage will not, like term life insurance, eventually cease to exist.
The Different Types Of Permanent Coverage
Whole life coverage is the simplest form of permanent coverage, for it allows those who are budget conscious to stick to a premium that remains the same for the life of the policy. There are advantages to beginning a whole life contract at a young age, since lower premiums remain in effect as the policyholder continues to advance in age and possibly developing some adverse health conditions.
Universal life coverage has some of the same benefits of whole life; death benefits are guaranteed pending the death of the policyholder, and the policy steadily grows in value, providing additional security upon maturation. One additional benefit of universal and whole life policies is that they can be borrowed against to pay down debt, to refinance, or to make large purchases, although this is not a practice that most financial advisors would condone.
Variable coverage grows in ways similar to whole life and universal coverage, but the policyholder has the option of taking a portion of his account and investing it in equities that have the potential to grow much larger than a life insurance policy normally would. This could potentially make cash payout at the end of the policy much greater. If you an individual that would be okay with a certain amount of risk to acquire growth, this might be the policy for you.
Survivorship coverage exists for families where it is necessary to insure more than one person. This type of coverage is generally less expensive than holding two life insurance policies. Some policies pay out upon the death of the first family member, while others grow in cash value until the death of the last surviving policyholder. These types of policies are ideal for people looking to maximize their cash growth while minimizing their out-of-pocket costs.
Final expense coverage is typically purchased by seniors ages 50 and above who do not want the burden of their funeral and burial expenses taken on by their survivors. With the average cost of a funeral estimated at about $10,000 today, final expense coverage is a welcome benefit to families already experiencing grief and loss.
No medical exam coverage is a benefit to people with pre-existing conditions that may not be covered by an insurance provider. While this is beneficial to those people, the coverage comes with higher premiums and lower overall benefits than policies offered to people willing to undergo medical exams.
Thanks to the wide variety of options, almost everyone can get the life insurance coverage they need at a price they can afford. Ultimately you will need to determine the best choice for your needs, but knowing a bit more about what is out there will allow you to make an informed decision. There is tremendous peace of mind that comes with knowing you’ve made the right decision for you and your loved ones.