Insurance

The 7 Types of Life Insurance Policies: Whats the Best One for You?

There are different life insurance policies available and knowing which one is right for you can be confusing. So first, this guide will discuss the four most common types of life insurance policies: term life insurance, whole life insurance, universal life insurance, and variable life insurance. then we’ll explain what each policy covers and help you decide which one is right for you.

what two types of life insurance are there?

The two types of life insurance are term and permanent life insurance policies. A term life insurance policy is temporary and only covers you for a set period of time, usually between five and 40 years. A permanent life insurance policy covers you throughout your life and builds cash value over time.

Reading: What different types of life insurance are there

what are the different types of life insurance?

You may be familiar with term life and whole life insurance, but there are seven types of life insurance. We tell you everything you need to know about the following types:

  • term life insurance policies
  • whole life insurance (permanent life insurance)
  • universal life insurance (permanent life insurance)
    • indexed universal life insurance
    • variable universal life insurance
    • final expense insurance (permanent life insurance)
    • group life insurance
    • compare the different types of life insurance policies

      term life insurance

      Term life insurance has a fixed duration of years. If you die before the term is up, you pay your designated beneficiary a fixed amount of money. Term policies are considered the simplest and most affordable type of life insurance policy.

      make payments when you buy insurance. then when you die, your beneficiaries will get the money. You can decide how to get the money: lump sum, monthly payments, or annuity. most people choose to get it in a lump sum.

      A term policy is cheaper than other types of life insurance.

      whole life insurance

      Whole life insurance is different from term insurance because it doesn’t expire. instead, you have a death benefit and a cash value, tax-deferred savings account similar to an investment.

      Each month, a portion of your premium goes toward the cash value saved. so the more you put in each month, the faster it will grow. the cash value can be used to buy anything or used for a loan.

      whole life protects you for as long as you pay your life insurance premiums.

      • limited payment for life
      • 7 pays for life
      • 10 pays for life
      • 20 pays for life
      • You may want to purchase whole life insurance if you need the cash value to cover things like endowments or estate plans or if you have long-term dependents like children with disabilities.

        term life insurance vs. whole life insurance

        term insurance is the best option for most people. but as with any product, there are good and bad points.

        term life insurance professionals

        • a simple policy with no hidden fees, exclusions or risks
        • You can cancel your insurance before it expires and not lose any value.
        • the cheapest option
        • term life cons

          • Coverage will end when the term ends. therefore, you must purchase a new policy or convert your existing policy before it expires.
          • lifelong professionals

            • does not expire
            • The cash value component is valuable for individuals wishing to plan their estate.
            • works like a long-term savings account
            • potential living benefits to pay for long-term care expenses
            • premiums remain the same (direct life insurance)
            • cons of a lifetime

              • more expensive than term insurance
              • People often buy less insurance than they need or cancel it early because it’s expensive.
              • slow growth
              • the policy’s cash surrender value changes over time
              • universal life insurance

                Universal life insurance has a cash value. premiums for this go to cash value and death benefit. therefore, any changes you make to what you pay or how much death benefit can occur without getting a new policy.

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                If you have cash, you can use it to pay your insurance premiums. that way, with the interest, your cash will be depleted and the interest will pay the premium.

                cash value of universal life insurance

                however, the interest rate on a universal life insurance policy is influenced by current market interest rates. therefore, if the interest rate paid on your policy falls below the minimum rate, your premium will have to increase to compensate.

                indexed universal life insurance

                The differences between Indexed Universal Life (IUL) and other forms of Universal Life (UL) are primarily in how the cash value fluctuates.

                An index compiles investments such as stocks, shares, or bonds. the s&p 500 and the nasdaq-100 are examples of indices. your insurance policy will not put your money on the market; instead, it uses the interest rate and the yield of an index to calculate the interest rate for your policy. therefore, the index is essentially a yardstick to determine the interest you earn.

                A guaranteed minimum interest rate is available for indexed universal life insurance policies (so you don’t lose money). still, interest rates are not fixed or change like other permanent insurance plans. iul, on the other hand, usually has profit caps, meaning you can lose profits if the index exceeds the maximum allowed.

                with iul policies, all of the same coverages are available as universal life insurance plans. however, the way the cash value account grows is unique. While the cash value of universal life insurance has a variable interest rate determined by the life insurance company, the cash value of indexed universal life insurance is based on an index chosen by the insurer.

                variable life insurance

                The money you contribute to a variable life insurance cash value is deposited into a series of mutual fund-like sub-accounts, with the potential for decent growth and the risk of losing money depending on the market.

                The cash value of a variable insurance policy is comparable to that of a stock. While this makes variable life insurance plans better investments than whole life insurance plans because they offer the potential for more tax-deferred growth, you can only invest in the subaccounts available through your policy.

                Because you can lose money due to a stock market crash, the product is riskier.

                variable universal life insurance

                You can change the premium amount and death benefit of a variable universal life insurance policy by investing in its cash value. it also shares many of the same risks as other types of insurance.

                final expense insurance

                Final expense life insurance is a way to cover burial and funeral expenses.

                Final expense insurance is a type of policy that covers the cost of everything related to your death. may include medical care, a funeral, or cremation.

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                This insurance is for seniors who do not have life insurance coverage. insurance can cover up to $50,000.

                However, final expense insurance policies come at a high price. If you or your family cannot pay for the funeral through other means, that is the best option.

                simplified issue life insurance

                With simplified issue life insurance, you don’t need to go through a medical exam. instead, you must complete a health questionnaire about smoking habits and serious illnesses and conduct a telephone interview with the underwriting team.

                Simplified issue life insurance policies are often designed for applicants ages 60 to 85.

                guaranteed issue life insurance

                Guaranteed issue life insurance is different from traditional life insurance. You don’t need a health exam and you don’t have to answer any health questions, as long as you can pay your premiums. however, you will not be eligible for guaranteed life insurance if you are unable to answer the application questions due to advanced dementia or Alzheimer’s.

                many seniors or terminally ill people have trouble getting life insurance coverage because it’s expensive. guaranteed issue life insurance offers them this coverage. but other policies are cheaper and may offer you more coverage.

                group life insurance

                Group life insurance is a type of life insurance offered by some employers. it is different from the kind you buy on your own.

                many people think that the life insurance provided by their employer is enough, but it may not be. life insurance provided by your boss is a benefit. but if you want to make sure your family is taken care of, this may not be enough.

                Employer life insurance typically provides low coverage, just enough to be worth a year or two of your salary.

                Related reading: Group Universal Life Insurance

                conclusion

                Now that you know about the different life insurance policies, it’s time to decide which one is best for you. please request a quote today; our team will be happy to help you find the right policy for your needs. thanks for reading!

                need help getting life insurance coverage?

                Contact us if you need help buying a life insurance policy. the service is free.

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                frequently asked questions

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