Types of Life Insurance Policies

Types of Life Insurance Policies

There are many reasons to purchase life insurance, such as: to replace lost income, to pay off a debt, or to help cover funeral expenses.

Term life insurance offers coverage for a set period of time while whole and universal life policies offer lifetime protection. Additionally, there are several riders available to customize your life insurance policy.

Types of Life Insurance Policies

There are many different life insurance policies available, and the type of policy that’s best for you depends on your unique needs. Life insurance can help protect your family’s financial security by covering final expenses, paying off a mortgage, providing children with an education or helping pay estate taxes.

Whole life insurance offers lifetime coverage and accumulates cash value that can be used as a source of loans or as an investment. It’s more expensive than term life insurance, but it provides guaranteed coverage and a death benefit that never decreases.

Universal life (UL) insurance has some similarities with whole life but is more flexible and allows you to vary the premium payments or rejigger the death benefit amount within certain limits. It also doesn’t have as many guarantees, but it can be more affordable than whole life insurance. It’s a good option for those who want permanent coverage and want to manage the risk of interest rate changes.

Term Life Insurance

Term life insurance is an affordable option to provide a lump sum of money to your beneficiaries if you die during a specific time period, which can range from 10-30 years. You can also choose a policy with a renewable option, which allows you to keep the coverage going (usually at a higher rate) once your level term length ends, but it won’t pay out if you die during the renewal period.

Whole life insurance provides lifetime coverage with guaranteed premiums and a fixed death benefit, but it’s typically more expensive than term policies. Some whole life policies build cash value in an account within the policy, which you can borrow against or withdraw throughout your life. Other options like final expense insurance offer a smaller lump sum of money, often tied to an end-of-life plan or funeral costs. Many of these types of coverage are available as a supplement to your existing life insurance or through work benefits programs.

Permanent Life Insurance

Whole life and universal life insurance provide a death benefit and cash value that grows on a tax-deferred basis. Depending on the policy, this growth can be based on the insurer’s selected interest rate or on a market index.

Permanent policies require a medical exam, which can increase rates if the applicant has a preexisting condition or has a high-risk job or hobby. However, these factors are less likely to affect the rates of permanent life insurance policies than term life policies.

Burial or final expense insurance is a type of permanent life insurance that covers funeral costs and other unplanned expenses after death. This policy typically has a low death benefit and low premium.

Survivorship life insurance, also known as joint life or second-to-die, is a form of permanent life insurance that insures two people. Upon the first person’s death, the policy pays out a death benefit to the beneficiaries named on the policy.

Final Expense Insurance

A final expense policy is a type of whole life insurance that gives your beneficiaries a lump sum when you die. It is intended to help cover expenses such as funeral and burial or cremation, the cost of liquidating your possessions, the costs of an obituary notice in the newspaper and outstanding medical or credit card debt.

These policies don’t require a medical exam, though you’ll still be asked to answer some health questions. They’re also called simplified issue or guaranteed issue policies, and they allow people who have health conditions to gain coverage.

They tend to have lower coverage amounts and higher premiums than other types of life insurance policies, but they’re an affordable option for those who may otherwise have trouble getting life insurance. They can be a good choice for older adults who want to take the burden off their loved ones and help cover end-of-life expenses. However, they’re not intended to replace pre-paid funeral plans or pre-need funeral services.

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