Life insurance is one of the most important parts of our financial plan, yet it is something we don’t like to talk about. Its purpose is to provide our loved ones with financial peace-of-mind after we die.
Because there are many types of life insurance available, it's difficult to choose the right policy.
Don’t worry though. At the end of this blog, you will have a great depth of knowledge about is life insurance the different types available.
Here is a list of the life insurance policies we are going to cover in this article:
With that said, let us get started.
A life insurance policy covers many expenses after someone’s death. For instance, the cost of the funeral, burial, and medical bills not captured on your health insurance. It can also pay estate settlement expenses and tax obligations.
A life insurance policy helps cover emergencies such as tuition fees for your children and mortgages. It can also offset credit card bills and other loans or debts using these policies.
Life insurance ensures that loved ones get an inheritance and have less financial burden after your death. You may also decide to leave a legacy by supporting a charitable organization close to your heart through life insurance.
Term life insurance covers the life of the policyholder for a specific amount of time.
In case of death during the term, the beneficiary receives the agreed payouts. However, no payment is made if death does not occur within the duration the policy is active.
Types of Term Life Insurance Policies:
Level premiums: Level premiums are the most common type, and the level depends on the duration of the policy. The periods may differ depending on the years, such as 10, 15, 20, or 30. You may renew your term when the policy is nearing its expiration date. However, the level term will become more expensive than the former, even though the years may be similar. The premium rate becomes costly because of the age factor. The insurer may reduce the premium rates if you choose a lower-level term.
Annual Renewal Term: An annual renewal term increases the policyholder’s premium rate each year until the expiry of the policy term. The reason is that an individual continues to get older with each passing year. This policy guarantees you coverage every year, although, in the long-run, it becomes more expensive.
Convertible Term: A convertible term covers a policyholder for a limited duration to convert it into whole life insurance. The advantage of this policy is that during conversion, the individual’s health is not considered and neither does the policyholder require a medical examination. On the flip side, the premium rates will have a sudden upward surge.
Increasing Term: An increasing term has death benefit increments as time goes by, while the premium rates also rise. This approach allows individuals to pay fewer premiums during their early life when they incur more expenses and monthly bills.
Decreasing Term: A decreasing term is a reverse of the increasing term. Here, the death benefits become lesser over time with constant relatively lower premiums compared to increasing term insurance policy, and it aims to reduce the term to match the outstanding mortgage of the policyholder.
Also called traditional whole life insurance, this type of life insurance goes on for the policyholder's entire lifetime. Upon the death of the policyholder, the stated beneficiary receives death benefits stated by the policy.
Usually, an individual and the insurance firm discuss the amounts of money paid as monthly premiums and death benefits.
Universal life insurance is permanent insurance that offers cash value benefits and death benefits. The coverage is only in force as long as the policyholder complies with the policy requirements and payment of premiums.
Like whole life insurance, premiums paid are split for the life cover and policy’s cash value. The insurance policy also highlights the terms and conditions in which a person can withdraw from the fund.
Variable universal life is a permanent insurance policy that allows policyholders to invest the cash value into stocks and bonds.
Cash value borrowing's or withdrawals should not exceed the surrender value to prevent the policy’s lapse.
This policy is comprised of sub-accounts that allow policyholders to manage savings separately from the cash value.
Once a person pays premiums, the insurer deducts the administrative costs and the cost of insurance. The remaining balance is channeled into sub-accounts for investments.
Survivorship life insurance covers the lives of two individuals. However, both people have to die for the beneficiary to receive benefits. That is why many people refer to it as "second-to-die life insurance".
When one of the insured people dies, the survivor must continuously pay the scheduled regular premiums for the insurance to be in force.
In rare cases, the policy may have a living benefit in the event one insured person dies. The survivor gets a small amount of the services. Such a claim is common where terminal illness is defined within the policy.
The insured usually pays a premium amount based on the explanations from the insurer. Some amounts are paid to cover administrative expenses, and the policy's (also called face value) death benefits.
A single-premium life insurance policy is a type of permanent insurance. Here, the policyholder makes one upfront lump-sum payment for the procedure in return for a guaranteed death benefit.
The policies you can pay for with a single-premium life insurance are whole, variable, or universal life insurance policies.
The insurer calculates the benefit amount based on the policy’s funding, age, and the health of the policyholder.
A 20-year-old in perfect health may invest $60,000 and receive a $450,000 death benefit. A 65-year-old in the same health status may get a death benefit of $140,000 for the same investment of $60,000.
Credit Life Insurance - This policy pays off a borrower's outstanding debt if they die. The face value amount is proportionate to the debt value and decreases with payments to the loan. This is suitable if the co-signer of the loan cannot make payments if you die.
Group Life Insurance - Group life insurance is usually paid for by an employer to cover employees against death. The insurance policy favors individuals who may not cover insurance expenses. The amount received in the event of death may vary based on the policy. Compensation for death is about $20000 to $50000 or one or twice the policyholder’s salary. The policy’s control remains in the employer’s hands, who may choose to end the contract at will, it does not require medical examinations from policyholders, and it is cheaper than individual life insurances. The insurer covers members as long as they are part of the group. If a person is fired or leaves the group, the coverage ceases to be in effect.
As we have seen, there are many life insurance policies. The main life insurance policies range from term, whole, universal, variable universal, survivorship to single-premium life insurance.
Ensuring that you have a life insurance policy will give your loved ones peace of mind in the event of your death.
Reaching out to professionals for expert advice on which life insurance policy will meet your needs is a wise decision to make. For more information, visit our life insurance options page or reach out to us at (904) 723-6300, and we will be glad to help.