Deciding to purchase a life insurance policy might be one of life’s most important choices you can make for your family.
However, you must know the different types of life insurance before buying a life insurance policy. Generally, there is a wide range of options are available when you buy a life insurance policy among which two kinds of life insurance policies are most common:
Term Life Insurance and Whole Life Insurance. Term Life Insurance, as the name implies, lasts for a specific and limited amount of time such as 10 or 20 years, and expires at the end of the term. On the other hand, a Whole Life insurance policy is a permanent life insurance that lasts your entire life.
The modern life insurance provider companies are now offering many other life insurance plans apart from these two life insurance types. We will elaborate on all types of Life Insurance policies including these two as well in the below section.
Different Types of Life Insurance
There are the following major types of Life Insurance that you can get from your insurance provider:
Term Life Insurance
Term Life Insurance lasts a specific number of years before its expiry. If you, unfortunately, pass away before the ending year of the term life insurance policy, a fixed amount of money (which is also known as the death benefit) will be paid to your beneficiary. Term Life Insurance is considered the simplest life insurance policy.
The death benefit is actually the money that your beneficiary will get in exchange for premiums you pay every month. The death benefits are paid in three forms; a lump sum amount, a monthly payment, or an annuity.
Generally, due to low premium rates, Term Life Insurance is more affordable in comparison to other life insurance types. According to a general estimate, an average monthly premium which you have to pay over a 20 year period is $500,000 for a monthly premium which is just $24 for a healthy 35 year-old female.
Whole Life Insurance Policy
It is a permanent type of life insurance that will not expire for your entire life. It has a death benefit just like term life insurance but a cash value option as well. Cash Value is an investment-like, tax-deferred saving account that is included in the policy.
You will get interest at a predetermined fixed rate as the cash gets value. Each month, when you will pay your premiums, a portion of these premiums go to the cash value option. You will get a guaranteed rate of return.
This return will go into your savings determined by your life insurance policy. The cash value grows with time and you can withdraw it when it accumulates enough. You can also use it for load.
A Whole life insurance policy is expensive and costs 5-15 times more than the term life insurance policy.
Universal Life Insurance
Universal Life Insurance is the same as a whole life insurance policy in terms of cash value. The premiums which you pay in your Universal Life Insurance policy will go toward both the death benefit and the cash value.
But the main difference between the whole life insurance policy and universal life insurance is the option of changing the premium and death benefit amount without getting a new policy.
Let us make it simple for you, the above-given statement means that you use the cash value to pay premiums in Universal Life insurance although you have to maintain a minimum premium to keep the policy ongoing.
It also means that you can skip paying premiums completely if you have enough money in cash value. Your premiums will be paid from the cash value until it is depleted.
Group Life Insurance Policies
It is also called a group term life insurance policy. It is actually an employee benefit provided by some employers. If we speak technically, it may not be a type of Life Insurance but still, you must have knowledge about it.
Some people think that the Group Life Insurance is enough for them and their family, but it is not true. If your employer is providing the option of group life insurance with no extra cost to you, it is a great benefit for you and you should get insured by all means.
But if you are thinking that it can provide coverage to your family as well, it will be not enough and you have to buy a private life insurance policy. Group Life Insurance policy offers low coverage amounts.
Final Expense Insurance
Final Expense Insurance is the best option if you want to cover your burial or funeral-related costs. Final Expense Insurance is actually a type of Life Insurance that covers all your expenses related to your last time including a funeral, cremation, and medical care.
Final Expense Insurance is particularly best for older people who don’t eligible for any other Life Insurance policy and don’t have enough savings to pay their last time costs.
According to an estimate, the average funeral or burial cost is around about $8,000 to $10,000. Adult children can also buy this Life Insurance policy for their aging parents or grandparents to cover such expenses.
However, the premiums are usually high in final expense life insurance policies with relatively low coverage amounts. So, it is best to avoid Final Expense Insurance, if you can pay for a funeral or burial through other means.