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What Are The 3 Types Of Life Insurance

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What Are The Different Types Of Life Insurance

3 Different Types of Life Insurance Policies – Life Insurance Explained Simply

You may be familiar with term and whole life insurance, but there are several other options depending on your needs and financial situation. Weâll explain everything you need to know about the following eight types of life insurance:

Key Takeaways

  • The two main types of life insurance are term and whole life insurance

  • Some types of life insurance come with a cash value amount that works like a savings or investment account

  • Other policies allow you to skip the medical exam or pay for specific end-of-life expenses

  • Term life insurance is the simplest and most affordable option for most people

Understand The Three Different Types Of Life Insurance

Life insurance is one of the most important topics in our industry and its arguably one of the most complicated, too. Picking the right life insurance policy can make a world of difference for your loved ones after you pass. But how do you know whats the right fit for you?

Were diving into the three main types of life insurance: term, whole life , and employment-based. Read on to learn more!

Types Of Life Insurance: Which Is Right For You

16 Minute Read | September 17, 2021

If you have a car, you have car insurance. If you have a home, you have homeowners insurance. If you have a life . . . well, it only makes sense to carry life insurance, right?

Life insurance is one of the most vital pieces of your familys long-term financial planand its the one we want to discuss the least. Its purpose is simple: to replace your income for your family if you die. But with all the choices available, finding a policy thats just right for you could lead to extreme confusion and frustration.

Fortunately, it doesnt have to be that way. Well take you through the most common life insurance policies and help you find the one you need.

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Bottom Line: What Is The Best Type Of Life Insurance For Me

The best life insurance company for you depends on a lot of factors, including your age, budget and financial goals. Take the time to compare different types of life insurance to find the policy that fits your needs.

The right life insurance policy can protect your loved ones when youre no longer around, so its worth putting in the extra time to determine which policy provides them with the help theyll need.


Where Can I Get More Answers About Life Insurance

Common Types of Life Insurance Infographic

Just contact a Guardian financial professional. They will take the time to learn about your needs, listen to your concerns, and explain the different insurance options that fit your situation and budget all from a company thats been helping protect families for more than 150 years.

If you are an employee, taking advantage of your benefits at work is a smart and affordable way to get the financial protection you want for yourself and your family. Contact your HR department to review your plan details and determine how much life insurance is available to you. Your employer may provide life insurance as a benefit, or you may opt to pay for additional life insurance through payroll deductions.

Riders may incur an additional cost or premium. Riders may not be available in all states.

The cash surrender value, loan value and death proceeds payable will be reduced by any lien outstanding due to the repayment of an accelerated benefit under this rider. The accelerated benefits in the first year reflect deduction of a one-time $250 administrative fee, indexed at an inflation rate of 3% per year to the rate of acceleration. Please see state-specific EABR Disclosure form for complete details about the rider.

A Waiver of Premium rider waives the obligation for the policyholder to pay further premiums should he or she become totally disabled continuously for at least six months. This rider will incur an additional cost. See policy contract for additional details and requirements.

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Understanding The Three Basic Types Of Life Insurance: Term Universal And Whole Life

While there are many different aspects of life insurance policy design that youll want to understand before you take out a policy, the most fundamental thing to know is the difference between term insurance, universal insurance and whole life insurance.

Term InsuranceTerm life insurance provides a death benefit if the insured passes away during a certain time frame specified within the policy. While the policy may have some added benefits attached there is no cash value associated with the policy, so there is no surrender value if it is terminated.

Because term life insurance covers a specified time period and has no cash value accumulation, its less expensive than other types of life insurance. Most people use this type of life insurance to cover a specific period of time such as to cover the 30-year term on their mortgage or to cover the period of time while their children are still dependents.

Whole Life InsuranceWhile a term policy only pays a death benefit if death occurs in a specified time period, a whole life policy will provide a death benefit for lifeas long as premium payments are made on time. Additionally, the policy has level premiums and will accrue cash values, which grow tax-deferred at a guaranteed rate. Once the cash values reach the same value as the death benefit the policy will mature and the value will be paid out to the owner.

Indexed Universal Life Insurance

Indexed universal life insurance is a type of universal life insurance , 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 doesnât directly invest in the market but uses the interest rate and performance of a specific index to set the interest rate for your policy.

Indexed universal life insurance policies have a minimum guaranteed interest rate , but the interest rates arenât fixed or varied like some other permanent insurance policies. However, IUL also usually has an earnings cap, meaning if the index performs better than the allotted maximum, you may miss out on the gains.

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

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Best For Single Adults On A Budget: Term Life Insurance

Youre young and single. So why do you even need life insurance?

As a single adult living on your own with no one to support, taking out a life insurance policy might seem counterintuitive. After all, who will the death benefit go to? Your dog?

Some financial experts argue theres no point to buying life insurance when youre young and have no one to support. While that might be true for many, it overlooks some important facts.

Even if a prospective beneficiary doesnt rely on you for financial support now, that person could use the money to cover the cost of your funeral, which is effectively an expense for you. And funeral costs arent the only thing to consider.

Say your parents co-signed your private student loans. Its possible they could be on the hook for any amount left unpaid in the event of your death. You might consider taking out a large enough life insurance policy to pay those loans off so that mom and dad arent stuck with your debt at the same time theyre grieving your loss.

Ultimately, its a personal decision that only you can make, but there are definitely points to consider when deciding whether a term life policy is right for you. And rather than leaving your benefits to Fido, you might think about naming your partner or nearest relative a parent, brother or sister, or anyone else who would be taking on the responsibility of your funeral expenses or resolving any other financial responsibilities for you as a beneficiary.

Other Types Of Life Insurance Policies

Types Of Life Insurance Explained

The two primary types of life insuranceterm life and permanent lifeare just the tip of the iceberg. Insurance companies also offer dozens of other insurance policies, each designed to pay death benefits in different ways. Heres a brief overview of the types of life insurance you may encounter when youre shopping around.

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What Are The Three Types Of Life Insurance

The selection of life insurance is much better to assure your familys financial security. Many people in the country have bought life insurance, but most of them dont know what type of life insurance they own. Well tell you the life insurance types based on which youll be able to take out a life insurance plan.

Life insurance is a policy that agrees to compensate for a certain amount of money in the case of the incidents the insured is covered for. Overall, life-insurance is a partial solution to death-related problems.

Life insurance typically is judged based on the owners necessities and intentions. Term life insurance gives coverage over a fixed period, while whole and universal life insurance, grants coverage over a lifetime. It is critical to perceive that the mortality benefits of all life insurance types are commonly tax-free of revenue.

Types of Life Insurance

Life insurance policies have three different types. Such as-

Protection Plans

A protection plan is a plan which covers all your different needs in one. You dont get to purchase several policies individually, just lost when it comes to average prices.

These insurance plans are unique or exclusive contracts that give a particular guaranteed sum or death benefit to the beneficiaries or nominees or families. If you no longer survive the tenor period, you will receive benefits in the form of a lump sum amount from the assured sum.

Savings Plans

Wealth Creation Plans

Fully Underwritten Life Insurance

If you’re healthy, fully underwritten policies will generally be the cheapest option.

This is because the application process typically includes a medical exam and questions about your health, as well as questions about your familys health history, your hobbies and your travel plans.

Insurers use this data to price the policy more accurately based on your specific life expectancy.

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Other Types Of Permanent Life Insurance

In addition to whole life, there are quite a few other types of permanent life insurance. What all of these policies share is some form of the feature we already mentioned, cash value. Think of cash value as a savings account youre depositing money into every month. Its a pool of money you own and can access or borrow against. The longer you have the policy, the more cash value the policy has.

Another major difference between term life policies and permanent life policies is that permanent policies dont expire. They continue until you die or quit paying your premium.

The particulars of how much your family receives, how the cash value grows, and other questions depend a lot on the policy you purchase. So beyond whole life, permanent life insurance policies can also include universal life or variable universal life.

Life Insurance Isnt Most Peoples Favorite Topic Of Conversation Largely Because It Inherently Forces People To Confront Their Own Mortality Theres Also The Fact That Deciding On The Right Life Insurance Policy For Your Needs Can Seem Like A Daunting Task Especially If Youre Unfamiliar With Policy Types Still Just As You Strive To Maintain A Good Health Insurance Policy To Protect Yourself In Case Of Injury Or Illness Youll Need Life Insurance To Protect Your Spouse Or Other Dependents If The Worst Should Transpire

3 Types of Life insurance

If you were ever diagnosed with lung cancer, breast cancer, colon cancer, leukemia, or any other type of cancer, youd undoubtedly search for the best oncologist near me and take advantage of any help that your individual policy for health insurance provided. Youd likely want to participate in any clinical trials you could if other methods werent yielding positive results as well. This is just one situation where youd likely be grateful to have life insurance so that if the worst did come to pass, youd know that your beneficiaries would be covered by your death benefit, and they could handle final expenses and other arrangements.

While you might think of a life insurance policy as something that youre only likely to need later in life, the earlier you can obtain one, the better. This is because premiums tend to be cheaper when youre young and still in good health, and you may find it easier to get a higher amount of coverage as well. Youll need to look at a variety of companies, such as;MetLife life insurance, to compare online reviews and quotes. Here are the three types of life insurance plans youre most likely to find and the advantages and disadvantages of each.

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What Is Not Covered By Life Insurance

Many life insurance policies will not pay out if the policyholder dies while engaged in illegal or dangerous activities. Your claim can also be denied if your policy is expired or something was misrepresented on your original life insurance application. To fully understand what your life insurance policy doesnt cover, look over the terms of your coverage.

Universal Or Adjustable Life

This type of policy offers you more flexibility than whole life insurance. You may be able to increase the death benefit, if you pass a medical examination. The savings vehicle generally earns a money market rate of interest. After money has accumulated in your account, you will also have the option of altering your premium payments providing there is enough money in your account to cover the costs. This can be a useful feature if your economic situation has suddenly changed. However, you would need to keep in mind that if you stop or reduce your premiums and the saving accumulation gets used up, the policy might lapse and your life insurance coverage will end. You should check with your agent before deciding not to make premium payments for extended periods because you might not have enough cash value to pay the monthly charges to prevent a policy lapse.

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How Variable Life Insurance And Variable Universal Life Insurance Compare To Basic Term And Whole Life Insurance

No risk of losing coverage, but no cash value when the term endsNo risk compared to other permanent types, but you may find better investment options elsewhereRisk of ending up with expensive insurance policy with little-to-no cash valueLimited returns could eat into your premiums and cause the policy to lapse; similar risk to Universal Life

Methodology: Information based on policies offered by Policygenius in 2021.

Ready to shop for life insurance?

Keeping It Simple: Term Life Insurance Makes Sense

Types of Life Insurance: 3 Types of Life Insurance Policies

Life insurance;should;be simple. Thats why we recommend only purchasing a term life insurance policy. Its straightforward, inexpensive, and designed to do one thing over the long-term:;support your loved ones if you die. And as an added bonus, the death benefits of a term life insurance policy are almost always;tax-free.

No one wants to talk about it, but we have to. You;need;life insurance. When youre gone, those you love will be grieving. This is unavoidable. Leaving them penniless, however,;is;avoidable. Make sure theyll be financially secure no matter what.

Whether youre in the market for a new life insurance policy or just wondering if youre carrying the right kind of life insurance,;we recommend RamseyTrusted provider Zander Insurance. Their insurance professionals will walk you through the process of securing a term life policy that fits your familys needs.;Start here to get your term life insurance quotes.

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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Variable And Variable Universal Life Insurance

How they work: The cash value in variable life and variable universal life insurance is tied to investment accounts, such as bonds and mutual funds. Variable life insurance premiums are typically fixed and the death benefit is guaranteed, regardless of how the market fares. In contrast, variable universal life insurance premiums are adjustable, and the death benefit is not guaranteed. If youre considering a policy like this, a fee-only financial advisor a planner who doesnt earn commissions based on product sales can help you select the best one.

  • Pros: There is potential for considerable gains if your investment choices do well. You can take partial withdrawals from the cash value or borrow against it.

  • Cons: It requires you to be hands-on in managing your policy as the cash value can change daily based on the market. Fees and administrative charges are deducted from your payment before going toward the cash value.

Determine How Much Life Insurance You Need

We recommend carrying a;term life insurance;policy that covers 10 to 12 times your annual, pre-tax income. If you make $40,000, you should carry at least $400,000 in coverage. Why this much?

If your surviving spouse invests that $400,000 in a good mutual fund with an average 1012% return, they could peel off $40,000 a year from that investment to replace your income without ever cutting into the original investment amount.

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