Planning for the future isn’t always easy.
We plan all our lives for future events—be it for our education, our children’s education, a marriage, the arrival of a child, or something else. We even plan what to have for lunch tomorrow.
But making plans to provide for our loved ones when we’re gone is definitely not as easy as planning lunch.
And with so many different types of life insurance, it may be difficult to decipher which coverage is best for you at this stage and in future stages of your life. The life insurance market is a riddle, with an assortment of insurance companies and insurance products to choose from. Making sure you have the right coverage with the right life insurance company can be downright exhausting.
With Insurify, you can wipe the moisture off your brow and relax. In a matter of minutes, Insurify will provide you with a list of quotes from a variety of insurance companies based on the information you provide. Amidst so many decisions we make every day, for the near and distant future, Insurify helps unmask the complexity in life insurance.
Main Types of Life Insurance
Life insurance, for simplicity’s sake, is divided into two main types of life insurance: term life insurance and permanent life insurance. The ways in which these two different types of coverage operate are varied.
Permanent life insurance has a savings and investment feature, called cash value, whereas term life insurance usually does not. Term insurance policies stay in force for a specific length of time or until the insured reaches a certain age, in contrast to permanent life insurance policies, which last for the policyholder‘s entire life. With both contracts, if you stop paying premiums, the contractual agreement is broken and the policy will lapse, or terminate.
Though they may seem worlds away from each other, permanent life insurance and term life insurance‘s fundamental goal is to cover individual needs. The policy that is right for you may not be right for the next person. Learning more about the different types of life insurance policies on the market will help you determine which policy is best for you.
Term Life Insurance
Term life insurance coverage protects the insured within a given time frame.
It can be as short as one year or as many as 20 to 30 years. Or it can last until the policy owner reaches a specific age. If the insured passes away while the policy is in force, the death benefit of the policy goes to the beneficiaries. If the policy owner outlives the time frame of the policy, the contract ends without a payout.
Term life insurance is less expensive than permanent life insurance and is typically best for younger individuals who would like a policy in place “just in case” something happens. Some policies are renewable, which means you can renew the policy without proof of insurability at the end of the term.
There are also convertible policies available which enable you to convert the policy into a permanent policy.
Because term policies are less expensive, you can get a good amount of coverage with affordable premiums. They are a good fit for people just starting out in their professional lives or those who want coverage until a certain time, such as until their kids graduate college.
With Insurify, you can compare term life insurance quotes with ease. After you determine which term limit and benefit amount are best for you, use Insurify to compare prices and policies from top insurers and find the best term life insurance coverage for you.
Whole Life Insurance
Whole life insurance is the most conventional form of permanent life insurance.
The benefits of whole life insurance policies guarantee more than any other type of permanent life insurance: a death benefit and cash value.
A portion of the premiums for whole life policies goes toward the face amount of the death benefit, and another portion goes toward the cash value. Cash value is assured to grow at a minimum interest rate, and the death benefit is guaranteed.
Because whole life insurance policies are more expensive, they are best for people with a steady income or higher income.
The savings and investment feature of whole life insurance policies is useful to supplement income during retirement. And since underwriting considers age when determining premiums, the younger you are when you purchase whole life insurance, the less expensive your premium will be. Whole life insurance has level premiums, meaning it does not increase with age.
This type of policy is best for people who want to financially invest in their future and ascertain a financial legacy for their loved ones.
Universal Life Insurance
Another form of permanent life insurance, universal life insurance has flexible premiums and an adjustable death benefit.
Cash value is determined by the investment account the life insurance company invests your premium into. With universal life insurance, you can skip paying your premiums if there is enough cash value to fund it, or you can increase or decrease it.
This type of policy doesn’t guarantee a face value death benefit, which is a set amount contractually agreed upon. Instead, the death benefit is your specified amount, which is a target amount. Because of the flexibility of universal life insurance policies, a face amount cannot be guaranteed. If the premiums are met throughout the life of the policy, the death benefit will equal or surpass the specified amount.
The advantage of universal life insurance is its flexibility. Since insurance needs change over time, you can change your policy to fit those needs. You can increase the policy’s death benefit, subject to insurability, or decrease it, with or without a change in your premium.
Universal life insurance policies are best for people looking for permanent coverage that will accommodate their changing needs.
Variable Life Insurance
Variable life insurance is another permanent life insurance policy that will pay out to beneficiaries for financial loss due to the insured’s passing.
However, with variable life insurance policies, premiums are placed in sub-accounts, like mutual funds. The policy’s cash value and death benefit fluctuate depending on the market performance of the sub-accounts. The insurance company guarantees a minimum death benefit with a level premium, but there is no guaranteed cash value.
The policyholders of variable life insurance policies are the owners of the sub-accounts; therefore, they assume the risk of the investments, not the insurance company.
Variable life policies are best for individuals who are looking for a higher return on the cash value. Although there is no guarantee that the policy will build cash value, there is a chance for a higher return than other types of policies.
Variable Universal Life Insurance
A variable universal life insurance policy is a permanent insurance product that, as the name suggests, combines elements of variable life insurance and universal life insurance.
Like variable life insurance, policy premiums are invested into sub-accounts, and cash value is not guaranteed. Similar to universal life policies, premiums are flexible. The death benefit amount of the policy is the policyholder‘s specified amount and changes with market performance.
The flexibility of universal life insurance with the investment features of variable life insurance makes variable universal life insurance a unique insurance product.
Variable universal life insurance is best for individuals who prefer an investment option with life insurance. With volatile markets and life changes, the insured can change the premium to meet existing needs.
Indexed Universal Life Insurance
An equity index is a statistical measure of shifts in the market value of a group of stocks. With indexed universal life insurance policies, the policy’s cash value component is assigned to an equity-indexed account or a fixed account.
The equity-indexed account is tied to an index like the S&P 500. The interest applied to the cash value in these accounts is linked to the percentage of the change during the index period, which is usually one year. The death benefit and premiums can be fixed or flexible like a universal life policy.
Indexed universal life insurance is a permanent life insurance product where the insured assumes all the risk of the investment. These are not as erratic as universal life policies because the cash value is either fixed or gauged by the index and not day-to-day market changes. These policies are right for people who prefer a more secure investment option and the ability to adapt the policy to changing lifestyles.
Other Types of Life Insurance
Many other products on the life insurance market can assist in securing important future events, estate planning, and final expenses.
These types of insurance policies can be permanent or term and are sometimes used in combination with other types of policies. Ask your insurance agent about these specialized life insurance options.
Credit Life Insurance
Credit life insurance is a term life insurance policy where the creditor is the beneficiary of the policy.
Credit life insurance can be issued by the bank where you are taking out a loan, or you can purchase a term life insurance policy that will cover the balance of the loan should you pass away before it’s paid off.
Credit life insurance is a decreasing term policy. As you make premium payments, the face value of the policy and the premium decrease. The policy continues to decrease over time until the balance of the loan and the face value of the policy reach zero.
Final Expense Insurance
Final expense insurance is a permanent life insurance policy designed to cover funeral expenses and any end-of-life expenses.
It is a bare essentials policy, and the face value of the benefit is usually between $20,000 and $30,000. Because it is a whole life policy, final expense insurance policies build cash value, but the premiums are relatively low because the face value is less expensive than most whole life policies.
Final expense insurance can be used alone or as an additional policy to another whole life or term life insurance policy. Because its death benefit covers end-of-life expenses, any additional life insurance policy‘s benefit can be used toward your legacy.
Guaranteed Issue Life Insurance
Guaranteed issue life insurance is similar to a final expense policy in that it is mainly used to cover funeral costs and any outstanding debts that remain after the death of the insured.
The main difference is guaranteed issue life insurance policies do not require a medical exam or the need to fill out a health questionnaire. The downside to this easy acceptance is that the policy has a waiting period of a number of years. This makes sense because if you buy a policy and pass away a few months later, your paid premiums would be minuscule compared to the benefit amount. But if you pass away during the waiting period, your beneficiaries will receive the amount of the premiums you paid plus interest.
Guaranteed issue life insurance policies are best for older individuals who do not qualify for any other type of life insurance policy due to health-related issues. The death benefit amount is usually between $20,00 and $30,000, similar to final expense insurance, but the premiums are typically higher. The waiting period is typically between two and three years.
Mortgage Life Insurance
Mortgage life insurance policies are much like credit life insurance policies. These policies are designed to cover the cost of your mortgage should you pass away before it is paid off.
Mortgage life insurance is a decreasing term life insurance policy. The premiums decrease over time as the mortgage balance lowers until the loan is paid off. If the policyholder passes away during the life of the policy, the benefit will be paid.
Family Income Insurance
Family income life insurance is a decreasing term life insurance policy that can be used singularly or in combination with a whole life policy.
It is designed to aid with difficult financial situations due to the loss of income in a household or family related to the death of the insured. If you combine this with a whole life policy, beneficiaries will receive a flow of income for a limited time after the policy owner’s death. And a lump-sum death benefit will be paid after the family income benefits have all been paid to the beneficiaries.
Family income life insurance provides a stream of income to beneficiaries after the insured person’s death for a specified amount of time. These policies are best for households with a primary breadwinner, where the loss of the policyholder‘s income would mean a significant change in lifestyle.
Types of Insurance Chart
To understand the different types of life insurance policies, take a look at the chart below. The chart gives fundamental information about each policy type; the premium and the rate at which it is paid, cash value (keep in mind cash value grows in accounts on a tax-free basis), the death benefit, and the length of the policy.
|Type of Policy||Premium||Cash Value||Death Benefit||Length of Time|
|Term Life||Level, increasing or decreasing||None||Face value death benefit||For a specified amount of time or until a certain age|
|Whole Life||Level||Guaranteed||Face value death benefit||Lifetime|
|Universal Life||Flexible||Minimum rate of interest||Specified death benefit||Lifetime|
|Variable Life||Level||Not guaranteed||Specified death benefit||Lifetime|
|Variable Universal Life||Flexible||Not guaranteed||Specified death benefit||Lifetime|
|Indexed Universal Life||Level or flexible||Not guaranteed||Specified death benefit||Lifetime|
Buying the Right Life Insurance Policy for You and Your Family
Buying life insurance is an important part of any financial plan if you want to make sure your loved ones are not burdened by final expenses or loss of income after your passing. It’s also important if you want to leave a legacy.
Insurify will quickly help you compare life insurance quotes from the best life insurance companies. You determine what type of policy best suits your financial needs and how much life insurance coverage is right for you or your household.
Insurify is a quote-comparison tool that will generate a list of quotes from prominent life insurance companies so you can compare policies and their premiums. Planning for the future is tough, but comparing quotes and coverages with Insurify to secure your legacy or meet your changing needs is as easy as comparing lunch menus.