Types of Life Insurance: A Quick Guide
Life insurance is a crucial financial tool that provides security and protection for your loved ones in the event of your passing. (Here's more from our Life Insurance 101 series, How Does Life Insurance Work?) However, choosing the right type of life insurance can be a daunting task, given the array of options available. Each type of policy comes with its own set of features, benefits, and considerations.
I’m here to help bring the key details you need to know in one place, so you can be one step closer to choosing the right life insurance for you.
Here are the most common types of life insurance:
1. Term Life Insurance
Term life insurance is a simple and affordable type of insurance that offers coverage for a specific period. You get coverage for a specific time (usually between 5 and 30 years), and if you pass away during that time, the insurance pays a death benefit to your beneficiaries. You pay a fixed amount for the entire term, so it's straightforward (and easier to budget for).
2. Whole Life Insurance
As it sounds, whole life insurance provides coverage for your entire life as long as premiums are paid. It accumulates cash value over time, acting as both insurance and an investment alternative. The premiums are higher than term life insurance, but some policies build cash value that can be borrowed against or withdrawn in the future.
3. Universal Life Insurance
Universal life insurance is the most flexible option. You can adjust how much money you pay and how much will be paid out when you die. It combines a death benefit with a savings component. And the best part? It earns cash value based on interest rates.
4. Variable Life Insurance
Variable life insurance is like a savings account that lets you invest your premiums in different investment options, just like mutual funds. The thing is, the money you have and the payout your loved ones will get when you're gone can go up or down depending on how those investments perform. It's a riskier option than traditional life insurance but could also offer higher returns.
5. Variable Universal Life Insurance
This insurance is a mix of two different types: variable and universal life insurance. You get the investment options of variable life insurance and the flexibility of premium payments and death benefits of universal life insurance.
6. Final Expense Insurance
Final expense insurance, also called burial insurance, is a smaller policy that helps pay for funeral and burial costs. It's easier to obtain coverage as these products can often accept individuals with health conditions that other insurance companies will not while at the same time waiving the need for a medical exam.
7. Guaranteed Issue Life Insurance
This policy is designed for individuals who might have difficulty obtaining coverage due to health issues that other insurance companies consider uninsurable. It doesn't require a medical exam but tends to have higher premiums and lower coverage limits compared to other types of policies.
If you're thinking about life insurance, it's important to find the right policy that fits your unique situation. There are several factors to consider, like your financial goals, budget, age, health, and who you want to benefit from the policy. It can be tough to navigate all the options on your own, so don't be afraid to call or contact me! I’m here to help get you connected with the right life insurance option for you.
