Life insurance can provide financial protection for those you love most.
But which types of life insurance are right for you?
Whether you’re single with no dependents, a stay-at-home parent, or the primary breadwinner, life insurance provides coverage for those you leave behind. The only problem seems to be choosing between the many life insurance options available!
Let’s break down the most common types of life insurance to help you understand your options.
Do I Need Life Insurance?
No one lives forever, which means that—unlike home or auto—life insurance is the one form of insurance policy that everyone needs.
You could go an entire lifetime without ever making a claim on your homeowners or auto insurance, but at some point, it’s guaranteed that you will pass away.
This uncomfortable truth means that many people avoid planning for the inevitable and end up without this incredibly valuable form of coverage. Looking at it through that lens, it’s clear that life insurance is one of the most valuable policies you can have.
Types of Life Insurance
Just like any other policy, life insurance isn’t “one size fits all.” There are multiple types of life insurance, catered to a wide range of needs and risk tolerance levels.
Let’s go through the basics of the most common types of life insurance policy to help you decide which ones may be right for you.
Term Life Insurance
One of the most popular forms of life insurance, term policies only last for a set period of time—typically 10, 20, or 30 years—before they expire.
If you pass away during this time period, your beneficiaries will receive the death benefit amount, which they can use to pay your debts, funeral costs, or anything else they need.
Should the policy expire before you pass away, you’ll have the option to renew it, let it end, or in some cases convert it to another type of life insurance.
Whole Life Insurance
Whole life is a type of permanent life insurance offering lifelong coverage, which means it doesn’t expire.
With a whole life policy, however, your premium payments go towards multiple things: the death benefit, a cash value component that works much like a bank account, and administrative costs of the policy. Your cash value earns interest and you can use it to help pay your premiums or leave it alone and let it gain interest.
Sometimes whole life policies also pay annual dividends, which you can receive as cash, use to pay premiums or put toward your cash component.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance that also has a cash value component. However, unlike whole life insurance, universal life offers more flexibility.
While your death benefit amount is fixed in a whole life policy, you have the option to change the death benefit amount with a universal policy. However, you may have to pay higher premiums or submit to additional medical exams to do so.
You also have the option to pay extra toward your life insurance premiums and earn interest on the excess.
Your cash value component earns interest. Universal Life is a more dynamic product, meaning that this interest can accrue in any of several ways. There are two main types of universal life insurance: Indexed Universal Life Insurance and Variable Universal Life Insurance.
With an Indexed Universal Life Insurance (IUL) policy, your cash value grows based on a stock market index, and there are usually minimums on those interest rates. With a Variable Universal Life Insurance (VUL) policy, your cash value can be invested directly in securities, such as stocks and bonds. However, there are no maximums or minimums in the amount of interest you earn (or lose), so there is a lot more volatility.
Guaranteed Life Insurance
Also known as “no questions” life insurance, a guaranteed life insurance policy does not require you to undergo a medical exam, answer health questions, or submit your healthcare records. Most life insurance companies have age limits for this type of policy (generally between 50 and 80 years).
With guaranteed life insurance, policyholders are always subject to a waiting period—typically between two and three years). If you pass during the waiting period, your beneficiaries do not receive the death benefit, but they will typically receive the premiums you paid, plus interest.
This type of life insurance tends to have higher premiums than a policy that requires a medical exam.
Burial Insurance
Sometimes called funeral insurance or final expense insurance, burial insurance helps pay for funeral and burial costs. Premiums and death benefits are often lower than other life insurance policies, so they can be a good option for people who don’t qualify for other types of life insurance.
Group Life Insurance
Group life insurance offered through your employer is usually very easy, guaranteed (no medical exams necessary), and low-cost or even free. However, an employer-sponsored life insurance policy is not enough for most people’s needs.
For one, it’s tied to your job, so if you leave your employer, you will also lose your life insurance. In many cases, it’s also tied to your job status. Which means that, if you were to go on medical leave, you might lose your life insurance when you need it the most.
Secondly, coverage is generally not enough to take care of expenses after you die. Benefit amounts are typically equal to a year’s salary, which may only be enough to pay funeral expenses (if that).
To address this concern, many employers allow you to purchase supplemental life insurance at the group rate. However, this coverage will not travel with you if you end up leaving your job.
How To Buy Life Insurance
With more than 900 life insurance companies in the U.S., purchasing life insurance can be exhausting. That’s why we recommend getting quotes through an independent insurance agent.
Independent agents not only have relationships with a multitude of different insurers, they have valuable knowledge and real-life experience working with a vast range of carriers and policies, so they can help you choose the right coverage for you.
Independent agents are also happy to answer any questions you have regarding the coverage amount you need and can even find great coverage on other forms of insurance as well.
Let’s Find a Policy For You!
Life insurance may not be the most interesting topic, but it’s a purchase you’re not likely to regret.
Whether you’re looking for a policy to protect your family while your children are young or one that will build cash over time, there’s a life insurance policy that will meet those needs.
At Harry Levine Insurance, we’ve been one of Orlando’s top insurance agencies for more than 30 years and our friendly agents have a wealth of knowledge about many types of insurance policies.
Visit our website for a free quote to see which types of life insurance are available to you!
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