The Primary Types of Life Insurance Policies
Life insurance seekers are faced with a couple of decisions immediately — like what type of policy they want and how much coverage to take out. The former may be the toughest step to take though, because even though having choices is a good thing, many would argue that there are simply too many types of life insurance. With these many options, choosing the right one can feel impossible.
It’s a common and fair quandary, but the task isn’t insurmountable. Shawn Meaike of Family First Life reviews the four basic types of life insurance coverage below, along with how people can narrow their options down to make finding their perfect match easier.
Term Life Insurance
Otherwise known as pure life insurance, term life insurance policies come with an expiry date, covering policyholders throughout a specific timeframe (generally 5, 10, 15, 25, or 30 years).
Once the term ends, policyholders can choose to renew it, convert it to permanent coverage, or let it lapse. The latter, of course, means their heirs won’t receive a death benefit if they die.
The coverage becomes more expensive as policyholders age due to the increased likelihood of developing more severe health problems. However, it’s the cheapest solution for those in their younger years.
People acquiring life insurance for a particular circumstance or debt (e.g., income replacement or mortgage) normally benefit from this policy type.
Whole Life Insurance
Unlike the previous type, whole life insurance offers coverage for policyholders’ entire lives.
One of the most attractive features of this insurance is the cash value. The whole life coverage provider puts part of policyholders’ monthly premium into a cash value which earns a fixed return rate every time they pay.
When whole life policyholders die, their heirs benefit from the built-up cash value. Plus, policyholders can tap into their cash value while alive to pay for unexpected situations — a feature not included in term policies.
On top of that, the coverage comes with guaranteed premiums. So, even as they age, policyholders won’t pay extra to retain the coverage.
Due to the guarantees and cash value, whole life insurance is one of the most expensive policy types.
Universal Life Insurance
Universal life insurance comes in different varieties and boasts distinct features. Like whole life coverage, it’s permanent and tends to offer a cash value.
Interestingly, it can be less expensive than its whole life cousin as it typically doesn’t come with the same guarantees.
Some versions of universal life insurance allow policyholders to vary their premiums and change their death benefits throughout their lives.
Variable Life Insurance
Similarly, variable life insurance provides cash value and permanent coverage.
The difference lies in the sub-accounts wherein policyholders can choose to invest, subsequently affecting how much the cash value increases. However, due to the nature of investments, cash values are at risk of decreasing in variable life insurance coverage.
Since picking the wrong investments could negatively impact the amount given to heirs, variable life policies are best left to those who want to take an active role in their insurance investments.