Different types of life insurance

Types of life insurance plans

Types of term life insurance 

It is one of the most popular types of life insurance policies, especially for minimum wage earners. It pays a low monthly premium. However, the coverage of the policy is not permanent. It has a specific ending and without cash value. You can choose from 5, 10, 15, 20, or 30 years term depending on your application’s current age. Although you can renew it every year, it is still subjected to the insurance provider’s policy. Some even require the insured to undergo medical tests again and underwriting processes. You might end up paying a much higher policy every year as you aged and develop health issues. 

Some choose to get a policy for parents until their kids are grown up and stable with jobs. The couple who do not have children decide to acquire a plan until their spouse gets a retirement benefit. It is not a bad choice for those who want to have coverage for a certain period. 

Types of whole life insurance

The name itself describes what types of life insurance it is. It is intended to secure the insured for a lifetime. Another great feature of a permanent policy is the fact that it builds cash value over time. In case you want this type of security, you can choose between whole life and universal life insurance coverage. 

Whole Life

As its name implies, whole life will provide a death benefit for the insured by the time of passing no matter how long he or she lived. At the start of the policy, an insured may need to pay for a higher premium, but part of it, about 2 to 4 percent it will go to a particular account. It is where the money is invested and build cash value. As the policy matures, the premium will decrease.

Moreover, the cash value money can later be used to pay for the fixed premium payments. Also, the insured has the right to get the cash payout according to the current value in case they want to cancel the policy. However, keep in mind that there are penalties involved if you want to cancel and borrow money from it.

The downside is when the insured passed away, the beneficiaries will only acquire the death benefit without the cash value. It is the best choice for those who can pay a higher premium. Also, a policy with guaranteed death benefit even if you live for 100 years or more. 

Universal Life

It is a permanent type of life insurance plan that can offer more flexibility to the insured. Features are just similar to the whole life plan with death benefit and cash value that grows overtime. However, it has the flexibility of setting up the plan the way you want the beneficiary to acquire the benefits after your death.

The insured can separate the death benefit and cash value into several payouts. For instance, you can choose to give the payout at different stages of your beneficiary’s life. If your beneficiary is your children, you can allow them to get a higher amount while still studying and giving off the remaining amount once they are already adults. 

Another case is when the beneficiary can get a definite amount every year until all benefits have been used. It is a wise decision so that the beneficiary can have a substantial amount of money that they can use every year. However, the insured needs to pay enough money for the cash value to earn at the end of the policy. 

Variable Universal

Another option is the variable universal, with a different way of investing the cash value. This plan makes use of high-risk opportunities to earn more through mutual funds. It is a riskier investment, but the insured can acquire more investment because it might incur more dividends.

The downside is the fact that stocks are volatile, so you may lose more money. It is the best choice for those who want lifetime death benefits and are willing to risk more significant investments. 

Index Universal life

Indexed universal life insurance (IUL) is a type of universal life insurance (UL), but the way the cash value behaves differentiates the two.

An index is essentially a group of investments like stocks or bonds. The S&P 500 and the NASDAQ-100 are examples of indexes. The insurer doesn’t directly invest in the market but uses a specific index’s interest rate and performance to set the interest rate for your policy.

Indexed universal life insurance policies have a minimum guaranteed interest rate (so you won’t lose money), but the interest rates aren’t fixed or varied like some other permanent insurance policies.

IUL policies have the same offerings as universal life insurance policies, but the way the cash value account grows and shrinks is different. While universal life’s cash value has a variable interest rate set by the life insurance company, indexed universal life’s cash value is based on an index chosen by the insurer.

Final Expense

If term life insurance, whole life insurance, or other permanent policies aren’t a fit, but you’re still looking for a way to cover funeral or burial costs, final expense life insurance might be right for you.

Final expense insurance is a unique type of policy covering the cost of anything associated with your death, including medical care, a funeral, or cremation.

Final expense insurance is usually attractive to older people who don’t have other life insurance coverage (maybe their term life policy expired) and don’t have enough savings to pay for their funeral, which costs $8,000-10,000 average. Coverage is usually for small amounts, typically up to $50,000 based on policies offered by Policygenius in 2021, to cover those expenses. It’s helpful if you don’t have another way to pay for your funeral and don’t want to burden your family with the costs. It’s also a good option for adult children to purchase life insurance for their aging parents to cover such expenses.

However, final expense insurance policies have a higher premium for a relatively low coverage amount. If you or your family can pay for a funeral through other means, that’s your best bet.

Group Life

Group life insurance (also called group term life insurance) is an employee benefit provided by some employers. It isn’t technically a life insurance type, but it’s essential to know how it’s different from privately purchased term life.

Most people think their employer-sponsored life insurance is enough coverage when in most cases, it isn’t. Make no mistake: If your employer is offering life insurance at no extra cost to you, it’s greatly beneficial. By all means, get insured. But if you need life insurance to protect your family, employer-provided coverage may not be sufficient.