In some ways, life insurance is the most important insurance you’ll ever get. Unlike auto or home insurance, which cover damage to or loss of your property, life insurance is intended to cover major expenses your family, loves ones, or business partners may face in the event of your passing.
A well-structured life insurance policy could mean your family is able to keep up with mortgage payments, your child can still afford to go to college, or your loved one is able to be financially secure.
But what type of insurance should you get? You may have heard there are two types of life insurance, term life insurance and whole life insurance. But there are several other types as well. Here’s a brief overview.
Term life insurance: Term life insurance runs for a set period of time, such as 10, 20, or 30 years. If you pass away during that time, your spouse or loves ones receive a death benefit. However, if you outlive that ‘term’ there is no benefit. This may seem like a major disadvantage. Many people still chose this form of insurance since it’s more affordable.
Convertible term life insurance: Not sure whether to go with term life insurance or whole life insurance? This policy allows you to delay that decision. You start out with term life insurance but have the option of converting to whole life insurance.
Renewable term life insurance: This is another solution to the set terms of term life insurance. Renewable term life insurance policies have a clause that allow you to renew it without having to qualify for a new insurance policy.
Whole life insurance: Unlike term life insurance, whole life insurance does not have a fixed term. That means there is a payout of benefits regardless of when you pass away. The downside is that it costs more. There is another advantage, however, you also have the option of cashing out your policy and using that money to pay off a mortgage or cover college tuition. You can also take out loans against some whole life insurance policies.
Universal life insurance: This is a form of whole life insurance that has more flexibility. It has a cash value account that earns interest. If you earn enough, you may be able to reduce your premium payments. Universal life insurance also allows you to adjust your benefit over time.
Variable life insurance: The cash value of your policy is linked to bonds and mutual funds. If those do well, your death benefit may go up. However, if they don’t, it could decrease. In some cases, policies still guarantee a minimum death benefit.
Variable universal life insurance: This combines the features of variable and universal life insurance. Like variable insurance, the cash value is contingent on how well your investments in stocks, bonds, and mutual funds perform. Like universal insurance, you have the option of adjusting your premiums and death benefit.
These are the main types of life insurance, but there are other variations and options available as well, such as final expense insurance which is just for death-related expenses, and guaranteed life insurance, for those normally unable to obtain life insurance. It’s best to consult with an insurance agent to determine which form of life insurance will best meet your needs. Call one of our offices today to set up an appointment.
Sources included: Investopedia, Insurance Information Institute, Policy Genius, and Nerd Wallet.