Table of Contents
Term Life Insurance
This is, of course, the simplest type of life insurance. It's a policy that only pays the beneficiaries of the insured only if death occurs during the term of the policy. The period of coverage may vary depending on your specific need but it generally covers from one year to 30 years.
Term life insurance is one of the most popular options since it offers several benefits. For example, it's the cheapest form of life insurance since you are only buying coverage for a specific time. In other words, you aren't required for a cash value component within the insurance policy.
This type of life insurance can be categorized into two basic types: decreasing term and level term.
- Decreasing term - This revolves around the fact that the death benefits of the insurance policy will drop, normally in one-year increments during the insurance policy's term.
- Level term - The death benefits do not drop. Instead, they stay the same during the entire period of the insurance policy.
Benefits of Term Life Insurance
Here are the benefits of term life insurance.
It's Affordable - Term life insurance is, without an ounce of doubt, the cheapest type of life insurance policy. In addition to having to pay the same amount during the entire term, it gives you the flexibility of choosing a term length and coverage amount that fits your budget. If anything, it's a lot less expensive than permanent life insurance.
Low Maintenance - One of the best advantages of term life insurance is what's referred to as "set it and forget it". The most important thing is that you continue paying your premiums and the policy will be active to the stipulated coverage time.
Guaranteed Payout - Even though your death benefits may decrease if you opt for a decreasing term life insurance, your death benefits will generally remain the same if you choose level term life insurance.
It's Flexible - The fact that term life insurance gives you the option of choosing your term policy, the coverage amount, and the time limit makes it the most flexible type of life insurance. This is beneficial for your budget as well as both your current and future needs.
Downsides
The only noticeable downside of term life insurance is that there's a possibility of you outliving the time limit of the policy. Under such a scenario, you might need other insurance coverage but you may find it to be very expensive since they'll take factors such as age and your health condition into consideration.
Is It Ideal for You?
Term life insurance can be perfect for those who need life insurance coverage for a specific situation, say to settle a particular debt. Many Americans often buy term life insurance as a way of covering their working years so that it becomes an income replacement for their loved ones. Others are known to buy this policy to cover large debts such as mortgages.
Permanent Life Insurance
Many other types of life insurance policies other than term life insurance policy can be categorized under permanent life insurance. While you may have heard of whole life insurance, which is a single type of permanent life insurance, there are other categories that we'll discuss.
The idea behind permanent life insurance is that it provides life-long protection. In other words, these types of life insurance are designed to cover you until your death.
Benefits of Permanent Life Insurance
The benefits of permanent life insurance include:
Flexible Death Benefit - Generally, the death benefit of a permanent term policy will be paid to your beneficiaries upon your death. While these benefits will largely depend on your life insurance contract, you can have the flexibility of adjusting the death benefits either up or down without necessarily having to purchase a separate life insurance policy.
The beneficial option of Cash Value - Permanent life insurance gives you the opportunity of building your cash value. This cash value will not be subjected to any tax. In short, you won't pay any form of tax on the cash value.
Flexibility in Payments - There are certain types of permanent life insurance policies that give you flexible premium payments, especially if there are changes in your financial needs. This gives you the option of changing the frequency by which you pay the premiums as well as the amount that you have to pay. This is possible if you take advantage of cash value as it can help in increasing, decreasing, or even skipping the premium altogether.
Types of Permanent Life Insurance
They include:
Whole Life Insurance
This type of life insurance provides coverage for the entire period of your life even if you live for 100 years. Using your premium payments, this policy builds cash value over time and the death benefits will be paid to your beneficiaries once you die. The death benefits generally do not increase or decrease. Instead, the death benefits remain the same and the cash value will give you a fixed rate of return.
Is It Good for You?
Whole life insurance is ideal for those looking for lifelong coverage and is ready to pay the premiums and guarantees provided by the policy. The only downside is that it's one of the most expensive types of life insurance.
Universal Life Insurance
The main feature of this type of life insurance is that the insured is protected with a guaranteed death benefit. These funds are usually invested to provide holders with cash value. It's cheaper than whole life insurance since the premium payments differ.
Is It Good for You?
Universal life is perfect for those looking for lifelong coverage. It's also ideal if you want to tie your cash value gains to your insurance. With universal life insurance, the cash value is the main benefit and this can be at a disadvantage if your policy guarantees do not make gains. You have to make sure that your policy charges do not cause your cash value to lapse or even deplete it.
Survivorship Life Insurance
This is joint life insurance that's meant to ensure that two people (a husband and wife) are covered so that the beneficiaries are paid when both the husband and wife pass away. Also called second-to-die life insurance, it's less expensive especially when compared to buying two separate life insurance policies.
Is It Good for You?
This policy is perfect in estate planning and the money is not required by the beneficiaries until both the insured pass away. On the contrary, it might not be the best life insurance policy if one spouse dies and the surviving spouse suffers financially. This is because the insurance payout will only be paid once both spouses pass away.
Burial and Funeral Insurance
Also known as final expense insurance, this type of life insurance is meant to cover the funeral costs and other final expenses of the insured.
Is It Good for You?
This type of life insurance is ideal if you're in poor health and do not want other types of life insurance. Differently, this type of life insurance can be expensive but that depends on your choice of coverage. Again, your beneficiaries won't get any death benefit if you die two or three years after buying the policy.
Mortgage Life Insurance
This type of life insurance is designed to cover the balance of a mortgage. The death benefit will be paid to the mortgage lender and not the beneficiaries of the insured. The payout should also be the balance of the mortgage or the partial balance of what you insured.
Is It Good for You?
This type of life insurance is ideal if you do not want your beneficiaries overburdened by mortgage once you die. Unfortunately, it won't provide any financial benefit to your beneficiaries.
Credit Life Insurance
Credit life insurance is meant to cover a specific debt or loan. The payment will be directed to the payment of the debt or loan in question.
Is It Good for You?
It's ideal if you do not want your beneficiaries to be overburdened by your debts. But like mortgage life insurance, it doesn't offer your beneficiaries with any financial flexibility once you pass away.
Recent Articles
