Consumers often ask about the different types of life insurance policies they can purchase. In this article, we summarize the two major categories of life insurance and provide examples of policies within each category.
There are two basic categories of life insurance: term life insurance & permanent life insurance.
A Term Life Insurance Policy is the most basic type of life insurance. It is low-cost, easy to understand, and has a fixed period of years. A term life policy provides a death benefit and pays out if the insured individual dies within the period of years. Term Life Insurance policies are a great option if your primary goal is to provide security for your family at a low cost. Most term life policyholders obtain their policy after a major life event such as buying a house, getting married, or having a child.
Policy coverage amounts (also known as the death benefit or size of policy) start at $50,000 and can be as large as multi-million dollar policies. The “term” in Term Life Insurance refers to how long the policy remains active – typically from 10 to 30 years and it is generally the consumer’s choice. Within Term Life Insurance, carriers offer different solutions to choose from that balance term, premiums, and coverage amount so you can get the exact policy that is right for you.
- Guaranteed Level Term Life Insurance – This is the most common life insurance policy. It has a fixed term, a fixed yearly premium for the full life of the policy, and a fixed amount of coverage. Guaranteed Level Term Life Insurance doesn’t provide any assurance that you’ll automatically be approved to renew your policy once you reach the end of your current term.
- Return of Premium Term Life Insurance – This policy returns the entire premium you’ve paid at the end of your term if you do not die during the term. If the policyholder does die during the term, the policy pays out the death benefit. Return of premium term life insurance is more expensive than other types of term life insurance policies.
A Permanent Life Insurance Policy is a life insurance solution that is guaranteed forever – as long as you pay your premiums timely. Many policies offer benefits such as the ability to set aside a portion of your premiums to build cash value (similar to a retirement or savings plan). Some plans even guarantee a rate of return on your investment or the ability to borrow cash from the policy. Permanent life insurance policies are more expensive than term life insurance policies. We recommend discussing your options with a licensed insurance agent to understand if combining life insurance and savings is a good option for you – especially if you’re focused on long-term solutions and putting money aside in an IRA or other retirement solutions already. Start here today and we’ll match you with someone that can answer all of your questions.
Here are a few types of policies within permanent life insurance you should ask about:
- Whole Life Insurance – A type of permanent life insurance that guarantees your death benefit as long as you pay premiums timely. Whole life insurance takes a portion of the premiums you pay each year and invests them on your behalf to build cash value that can be accessed in the future. There are also options to borrow against the policy – although you must pay the funds back or they may be deducted from your death benefit.
- Universal Life Insurance – Universal life insurance varies from other permanent life insurance policies mainly in that it allows flexibility in the payment of your premiums and the amount of the death benefits. This type of policy has the flexibility so you can skip one or more premium payments or use any cash value you’ve built up toward your premium payments. There are certain minimum payments you must make overtime or your policy will be canceled. Lastly, this policy also allows you to change your death benefit coverage as your life circumstances change.
Let us match you with a licensed life insurance agent that can help you find the right policy for you no matter how unique your situation or how sophisticated your goals are.