The Types of Life Insurance

According to last year’s statistics, only 57% of adults in America have life insurance. If disaster strikes, you do not want you or your family to be a part of the 43% that is living without it. Life insurance is vital for many reasons and is a critical element for sound financial planning. When it comes down to it, the cost of skipping out on life insurance is more than paying premiums. 

Although life insurance may not be glamourous to think about, it is a necessary process that everyone should go through. And we are here to help

When it comes to thinking about what life insurance to purchase, it is essential to look at multiple types of life insurance policies to find the best fit for you and your family. Different types will fit different circumstances more appropriately. There are two main categories of life insurance: term and permanent. Simply put, term life insurance is coverage for a fixed time, while permanent life insurance is coverage guaranteed for the insured's entire lifetime. There are multiple life insurance policies within the permanent and term categories, each having specific benefits and drawbacks. Whether you are single, young, old, healthy, or have pre-existing medical conditions, there is certainly a policy for you. 

Common Life Insurance Policies

Term Life Insurance 

Term life insurance is simple and usually the most affordable route. The ultimate goal of term life insurance is to pay the beneficiary, or people chosen - children, spouse, etc. – a certain amount of money in case of the insured's death. This way, the income of the insured will be replaced. However, a term contract is not worth anything unless the insured dies within the period they are covered. 

Level Term Policy

This policy is a type of term insurance where premiums are guaranteed to stay constant throughout the term. The most common types of terms are 10, 15, 20, and 30 years. Because the premiums are constant, this can be a benefit when budgeting long term. 

Renewable

The benefit of a renewable term policy is that the insured can renew their coverage for a set time without having to re-apply. There is also an annual renewable term life insurance policy that works on a one-year basis. 

Permanent Life Insurance

Permanent life insurance is a little more complicated than term life insurance because it has two goals. The two main objectives of permanent life insurance are to pay beneficiaries in case of the insured's death, and the second is to act as an investment account. 

Whole Life Insurance 

This type of life insurance is the most common type of permanent life insurance policy that people purchase. Whole life insures the policyholder for the entirety of their life as long as premiums are paid on time. This insurance policy has many benefits, including that the premiums are fixed and will never increase, regardless of how the market is doing. Another benefit is that the insured's death benefit is guaranteed unless the required payments have not been made. Visit our article on the pros and cons of whole life insurance for a more in-depth analysis.  

Universal Life Insurance

This type of life insurance is also termed as "adjustable life insurance" because, unlike whole life insurance, the insured has more flexibility. For example, the insured may be able to access some of the cash value or adjust the yearly payment (when to pay and how much – within certain limits). This policy also allows the insured to stop paying premiums in case of unforeseen financial problems. 

Variable Universal Life Insurance 

With universal life insurance, the insured will receive a life insurance policy, a savings account, and also sub-accounts that work similarly to a mutual fund all at the same time. Because of this, this type of insurance can get very expensive. Also, this type of life insurance can be risky because the insured is in charge of the mutual fund. Because of market fluctuations, the insured can generate significant returns or experience severe loss.  

Policies That Are Not As Common

Listed above were the most common types of life insurance policies and their explanations. Here are a couple of other life insurance options that are not as popular, but might be worth looking into. 

Joint Life Insurance 

This type of life insurance allows couples to share a policy. It covers both individuals for the fee of one. It is designed to give death benefits upon the death of the first spouse. 

No Medical Exam Insurance 

With this type of life insurance, the insured is not required to undergo a medical exam before purchasing. Because of this, this type of policy can be pricey as it is more of a risk to the insurance company. 

Moving Forward

Now that you have scratched the surface on different types of life insurance options that are out there, it is important that you take the next step. Be proactive in talking to a professional, and take the initiative to secure your future. There is a policy out there that fits you best, and finding one does not have to be overwhelming. PolicyScout is here to help and make the process as simple for you as possible. Visit the website and get matched to a policy that best suits your circumstances today.