Whole Life Insurance Explained
Whole life insurance is a type of life insurance that is meant to be permanent and last for an insured persons whole life. Whole life insurance has a level premium structure and will build cash value over time. Whole life insurance is also eligible to receive dividend payments from the life insurance company.
Whole life insurance policies guarantee that the cash value will build at least at a certain rate if all payments are made on time, but the dividend payment will increase the rate at which value can build. The amount paid by the dividend payment is dependent upon the performance of the company over the previous year, and the rate paid is multiplied by the existing cash value of the policy.
Many policies will have a dividend payment which becomes high enough to pay the entire premium due after a certain point. The cash value will eventually grow enough so a policy owner has a positive return on the amount of money they put into the policy. This also makes whole life insurance a form of investment.
Whole life insurance policies also allow for loans to be taken against the cash value of the policy. These loans can be taken for any reason and can be paid back upon the discretion of the owner of the policy.
The big advantage of whole life is that the insured person can never outlive it. Beneficiaries are always protected for the long term. For this reason whole life insurance is often used for estate planning, and to fund generational trusts.
The Main Types Of Life Insurance: A Detailed Guide
Life insurance is a staple for American households, with approximately 54% of adults in the US holding life insurance policies. Life insurance is a contract between you and the contractor that guarantees your familys financial security should you die unexpectedly.
Its important to put a lot of thought into the life insurance policy you choose. Thats because this insurance policy is what will determine your loved ones future after you pass on. The first step in choosing the right life insurance policy is knowing the different types of life insurance available.
Todays post is a comprehensive guide on what types of life insurance policies exist for your consideration. This should help you make a more informed decision the next time youre looking for life insurance. Lets jump straight into it.
The Many Benefits Of Having Life Insurance
All life insurance can give you financial confidence that your family will have financial stability in your absence. But generally, the more life insurance you have, the more benefits it will provide to your family when needed. For example, some people receive a nominal amount of life insurance say $25,000 through their workplace. While that theoretically sounds like a nice sum of money, in practice it may only be enough to cover funeral expenses and a few mortgage payments. But with a larger coverage amount, your family can realize far more benefits, such as:
- Income replacement for years of lost salary
- Paying off your home mortgage
- Paying off other debts, such as car loans, credit cards, and student loans
- Providing funds for your kids college education
- Helping with other obligations, such as care for aging parents
Beyond your coverage amount, different kinds of policies can provide other benefits as well:
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Types Of Life Insurance Policies
For the most part, there are two types of life insurance plans – either term or permanent plans or some combination of the two. Life insurers offer various forms of term plans and traditional life policies as well as “interest sensitive” products which have become more prevalent since the 1980’s . In New York State, the Department of Financial Services must approve any life insurance policy before a company can issue it to consumers and New York Insurance Law provides for standard provisions that must be included in every policy.
The Life Insurance Premium
This type of life insurance, where the costs are directly charged by age, is called one year term life insurance. It is term life insurance because there is no cash values and the premiums correlate directly with your age. Its specifically one year term life insurance because the premiums increase every year . One year term life insurance isnt palatable to most consumers. Consumers would rather not pay life insurance premiums that they know are going to increase every year.
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Fully Underwritten Life Insurance
This is among the most affordable life insurance options for healthy individuals. Part of applying for this policy requires a comprehensive medical exam. It also entails a deep look at your familys health history, hobbies, and travel activities.
The state of your health and your familys health history will determine how much the insurer will charge you for the policy. The greater your risk of passing on, the more youll pay the insurance company.
What Type Of Life Insurance Do You Need
The right insurance for you depends on both your circumstances and what you would like your payout to cover.
The length of the policy might be a consideration. If you expect that your mortgage has, for example, 20 years to run, you might want a decreasing term policy that runs for this length of time.
Or you might be entering old age and want to set something aside for your children or grandchildren. In this case, you might be more tempted by an Over 50s policy rather than one with a lifespan of pre-determined length.
Your personal financial circumstances could also play a prominent role in choosing life insurance. Your employer might offer death in service, which can supplement the value of a life insurance policy. Or you might know that you are only able to responsibly commit a certain amount each month to a life policy, which can affect the size of a payout.
And you might simply know that you want a policy payout of a certain size. In this scenario, you can look at which types of policy are going to offer this and what conditions might be placed on such a policy. Remember that payouts can be subject to inheritance tax.
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Burial & Funeral Insurance
The basics: You may see this kind of policy called burial, funeral or final expense insurance. No matter the name, its usually a small whole life insurance policy thats intended to pay only for funeral costs and other final expenses. Its often offered as a policy that you cant be turned down for and that doesnt require a medical exam.
Who is it good for: These types of policies are generally for people in poor health who dont have other life insurance options and who need insurance for funeral expenses.
Downsides:Burial insurance policies are expensive, based on the amount of coverage you get. They also have a safeguard for the life insurance company: Your beneficiaries wont get the full death benefit if you pass away within two or three years after buying the policy.
Check the policys timeline for these graded death benefits. Your beneficiaries might receive only a refund of the premiums you paid in, plus some interest.
Understanding The Different Types Of Life Policies
Answering those questions can help you understand which type of life insurance would work for your situation.
The two main types are:
- Term, which provides temporary coverage.
- Permanent, which provides coverage for the rest of your life.
Within both of these main types of life insurance are different types of policies.
The table below outlines various types of policies, including different types within term and permanent life, and what they typically offer. For more information on a specific type, click its name.
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Qualifying For Life Insurance
Insurers evaluate each life insurance applicant on a case-by-case basis, and with hundreds of insurers to choose from, almost anyone can find an affordable policy that at least partially meets their needs. In 2018 there were 841 life insurance and annuity companies in the United States, according to the Insurance Information Institute.
On top of that, many life insurance companies sell multiple types and sizes of policies, and some specialize in meeting specific needs, such as policies for people with chronic health conditions. There are also brokers who specialize in life insurance and know what different companies offer. Applicants can work with a broker free of charge to find the insurance they need. This means that almost anyone can get some type of life insurance policy if they look hard enough and are willing to pay a high enough price or accept a perhaps less-than-ideal death benefit.
Insurance is not just for the healthy and wealthy, and because the insurance industry is much broader than many consumers realize, getting life insurance may be possible and affordable even if previous applications have been denied or quotes have been unaffordable.
In general, the younger and healthier you are, the easier it will be to qualify for life insurance, and the older and less healthy you are, the harder it will be. Certain lifestyle choices, such as using tobacco or engaging in risky hobbies such as skydiving, also make it harder to qualify or lead to higher rates.
Accidental Death And Dismemberment Insurance
An accidental death and dismemberment policy, or AD& D, is one of those policies almost everyone has encountered at some point. The insurance agent tries to sell you an inexpensive policy that pays out in the event of your accidental death or dismemberment. If you lose an arm and cant work, it pays a portion of the benefit. If you die in an accident, it pays the full death benefit.
These policies are cheapusually just a few bucks a paycheckbut you get what you pay for. Many AD& D policies will not pay a death benefit if you die from a medical procedure, a health-related issue, or a drug overdose. So as you get older, your chances of dying by accident are significantly reduced. That is why an AD& D policy is no substitute forwait for ita term life policy.
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Learn About Term Life Insurance
This type of coverage is simple to understand, easy to apply for, and buy. Term life insurance provides dependable coverage at an affordable price. As the name conveys, term coverage lasts for a specific period of time typically 10, 15, 20 or 30 years. Once the term length is up, coverage ends, or you can renew it, but at a higher price.
Why is term life insurance a popular choice? Because it offers coverage during the years your family needs it most and at a reasonable price. Depending on the term length and amount of coverage you purchase, it could offer life insurance protection until the mortgage is paid off, your partner is retired or your kids leave home.
If you need help figuring out the right amount of coverage and term length for you, an online life insurance calculator takes out the guesswork.
Term life insurance itself comes in a few varieties, so if you think it may be the right choice for you, heres what you should know.
What Is The Best Type Of Insurance For You
term life insurance is a good type of insurance and i will recommend it for youThis type of insurance is the simplest way to go if you like to live smart, secure money, and provide yourself and those you love with the long-term consensus of mind.
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Level Term Insurance Policies
Like term life insurance policies, a level term policy covers your beneficiaries for a specific time. However, the premiums and benefit amount are the same with level term insurance policies even if you pass away. This is ideal for long-term agreements because while the premium remains the same, the coverage increases.
Its worth noting that premium rates with term life insurance policies increase as they age. However, level term insurance policies have higher premiums than term insurance policies. Do the math and find out which one works for you.
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How To Buy Insurance
You can buy in 4 simple steps:
KNOW WHAT YOU NEED
Understand the covers you need based on personal requirements.
Get all the important details. For example, in the case of motor insurance get details such as the manufacturing date of the vehicle, engine specifications, etc. For health insurance, check whether you need insurance for self or the entire family.
This initial assessment will help you get an idea about the coverage that you need.
Dont forget to read the exclusions
Whats the sum assured?
Are there any extra services offered
Select the plan that best suits your requirements.
Reach out to the company offering the plan.
Fill in the application and pay the premium.
You can do it online on the insurers website.
You can also buy from a broker or the dealership.
Additions To Permanent Life Insurance
Some policies include optional riders or additional benefits that you may want to be aware of such as
- Accelerated Death Benefit RiderIf you have a qualifying terminal illness, an Accelerated Death Benefit Rider on your policy gives you an option to receive a portion of your death benefit to help with the costs of end of life health care.
- Accidental Death and Dismemberment InsuranceAs the name implies, AD& D insurance pays the beneficiary in the event of a covered and unintentional death of the insured. Typically this coverage is offered as a rider on term insurance policies.
- Critical Illness InsuranceIn addition to a permanent policy, critical illness coverage is where the insured receives a cash payout to help with expenses incurred for the treatment of health events, such as cancer or a heart attack.
So, which is the best type of life insurance? The short answer is that It depends on your needs and your financial plans. Whichever type you choose, take a moment to consider your short- and long-term finances and family circumstances. Once youre ready, we can help you become fully protected in no time.
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Some Things To Consider
The first difference that you’ll immediately notice between a permanent and tern policy is the price. With permanent coverage, the insurer knows they’re going have to pay on the policy at some point, and this is reflected in the premiums they charge.This is a big reason why, unless your goals are only met by a permanent policy, we generally recommend low-premium term plans. Because……one of the biggest mistakes people make when purchasing a policy is to buy permanent insurance too expensive for their budget. Then, a few years later, some payments are missed and the policy is terminated, leaving the buyer with zip. This only wastes your money.Term insurance, on the other hand is cheaper and immediately cost-effective, while cash-value policies only become cost-effective after you have owned them for ten years.
Other Types Of Life Insurance
Group life insurance is typically offered by employers as part of the companys workplace benefits. Premiums are based on the group as a whole, rather than each individual. In general, employers offer basic coverage for free, with the option to purchase supplemental life insurance if you need more coverage.
Mortgage life insurance covers the current balance of your mortgage and pays out to the lender, not your family, if you die.
pays the balance of a specific loan, like a home equity loan. Your bank might offer to sell you a credit life insurance policy when you take out a loan. If you die, it pays off the lender, not your family.
Accidental death and dismemberment insurance covers you if you die in an accident, such as a car crash. AD& D insurance also pays out for the loss of limbs, as well as the loss of your sight or hearing.
Joint life insurance insures two lives, usually those of spouses, under one policy:
First-to-die: Pays out after the first policyholder dies. The policy would then expire it doesnt continue to cover the second person. These policies are extremely rare as the demand for them is low.
Second-to-die: Pays out after both policyholders die. These policies can be used to cover estate taxes or the care of a dependent after both policyholders die.
Cash value grows in permanent life insurance policies, including whole life insurance, universal life insurance, variable life insurance and variable universal life insurance.
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Different Types Of Life Insurance Explained
If you want to continue to make sure your family are looked after if youre no longer around to help them, then you should consider taking out a life insurance policy. There are many different types of life insurance policy, so to help you decide which one best suits you, weve created an easy-to-understand guide to the different types of life insurance you can buy.
Taking out life insurance is a way of giving you peace of mind. With life insurance you pay into a policy, and then this policy will pay out to a chosen person or people if something unfortunate, such as death or critical illness, happens to you.
Life is complicated and can be unpredictable, and so different types of life insurance have been created that match your needs. Lets take a quick look at the different kinds of life insurance policies to find out if theres one that suits you.