There are many different types of life insurance policies available; the most basic of which are TERM and PERMANENT. Within each of these categories, however, there are many different types of life insurance policies to choose from.
When we think about life insurance, we usually do not take into account all the different types of life insurance plans that are available to us. We often talk about “life insurance” as if it’s a single thing. You just buy life insurance and you’re all set with your financial plan, right?
Not quite. That’s like saying you’re going to buy a car without thinking about whether you want something big to fit a whole family, a speedy sports car, or an environmentally-friendly Tesla. There’s a HUGE difference.
So after you’ve decided to buy a life insurance policy, you need to ask yourself what is the best plan for you’r needs. And that question can come with more questions. What are the different OPTIONS available to me? What is the better choice between term and permanent?
But don’t worry – we’re here to help you understand all of the different types of life insurance. And once you understand the pros and cons of each, you’ll be able to pick the one that’s best for you and your family.
Here’s a breakdown of the different types of life insurance.
Term life insurance is the most basic type of life insurance that you can purchase. This is because term life insurance is PURE life insurance, meaning it does not have any cash value/savings attached to the policy. for this reason, term life insurance is often the most affordable and cheapest– specifically if you are younger and in good health at the time you apply for the coverage.
You can purchase term life insurance for specific periods of time, such as 1 year, 5 years, 10 years, 15 years, 20 years, 25 years, 30 years – and in some cases, even longer.
When purchasing a level (price and coverage remain the same for the term of the policy) term life insurance policy, the amount of the premium(payment) will remain the same throughout the life of the policy. Here is a quick video illustrating an example.
Lets say Bob decided to purchase a term life insurance policy at the age of 35. If Bob were to choose a 20 year term option, he would have coverage from the age of 35 – 55. Bob will be paying his premiums each year, and if he were to pass away unexpectedly between the age of 35 and 55, then the life insurance company will pay the death benefit to his beneficiaries. BUT, you are probably asking yourself “what happens if Bob passes away after the 20 years? Like at the age of 56? That is a great question, Since Bob only got a 20 year Term policy, he only has coverage for that amount of time. At this point the life insurance company either says thank you for your business and you both go your separate ways, or they offer you to continue with the coverage that you currently have, BUT at a skyrocketed rate(normally 4-6 time more than what you were already paying).
Now, if you survive the term duration that you elected when you purchased the policy and he or she wishes to remain covered by life insurance, they will need to re-qualify for a new policy at their then-current age and health status. At that time, the premium on a new life insurance policy may be quite a bit higher. In some cases, a term life insurance policy may have an option to convert the coverage over into a permanent life insurance plan.
Permanent life insurance is EXACTLY what it sounds like, “PERMANENT” meaning it never expires or ends. This is different from term life insurance because it offers both death benefit protection, as well as cash value accumulation. Permanent life insurance plans are intended to last for the remainder of the insured’s lifetime – as long as the premiums are paid. There are many different types of permanent life insurance plans.
The most common type of permanent life insurance plan is Whole Life. With this plan, your premium is locked in and never changes. This means that regardless of future events, your payment will never increase or decrease.
The cash that is accumulated within a whole life insurance policy grows on a tax-deferred basis. This means that the gain on your cash will not be taxed until they are withdrawn – allowing them to compound over time.
The cash in a Whole Life Insurance policy will grow slowly the first couple of years. The reason for this is because a good portion of your payment is going toward the cost of insurance and fees. However, after the first couple of years, the cash in a whole life insurance policy (if structured correctly) can steadily grow.
Some whole life insurance policies will even provide dividends to their policyholders. Because these are considered to be a return of premium to the policyholder, they are also not taxed. Dividends can also help the cash value in a policy grow significantly – although they are never guaranteed.
Universal life Insurance is a type of life insurance that also provides a death benefit and a cash accumulation feature that allows your cash to grow tax free.
Universal life insurance has a cash value, just like a whole life policy. The main difference is that these type of policies are more flexible with the premiums and death benefit. The reason being is because you are permitted – within certain guidelines – to choose how much of your dollars will go towards the cost of insurance (death benefit), and how much will go towards the policy’s cash value.
This part can be a double edged sword because if you are not working with the right agent that has access to different life insurance companies to be able to structure a plan that best suits you, it is very possible that the majority of your dollars invested into these type of plans will go toward a pricey life insurance death benefit.
So, just as with a whole life insurance policy, the cash in a universal life insurance policy can be borrowed or withdrawn for any reason – including paying off debt, supplementing retirement income, or even going on a vacation.
Final expense insurance is often called burial insurance and is intended for those who are between the ages of 40 and 85 – but just because you are a senior, it does not mean that you are only limited to these type of policies. Final expense life insurance policies were designed for those who want to ensure that their loved ones will not be left with the high cost of a funeral and other related expenses such as a headstone, burial, flowers, and memorial service.
The average cost for a proper funeral service now and days is between $9,000 and $14,000 – an amount that allot of us don’t have available when the need comes.
Most of the time, the underwriting requirements for these types of plans are very lenient and will not require the applicant to complete a medical exam. Also, the cost for this type of coverage is usually not high, even though the applicants are usually older.
No medical exam life insurance coverage has a simplified underwriting process and will not require that an applicant completes a medical exam as a part of the underwriting process. In the more traditional route, when applying for life insurance, you need to do a paramedical exam where a nurse will ask in-depth health questions, and will also take a blood and a urine sample.
This is why it is important that you work with an independent life insurance agent that has access to multiple carriers and understands their underwriting guidelines. I say this because if you have certain types of health conditions, it is possible that you may be denied for the life insurance coverage that you need. But, with no medical exam life insurance coverage, you could be approved for the coverage that you need – and, because there are no medical exam, these policies are often approved within just a day or two after applying.
Without having the proper life insurance protection, all of your hard earned savings and assets will have to be used for paying off debt, maintaining a spouses living costs, or paying the high cost of your final expenses – which today can average more than $14,000 in some areas.
Getting a set of quotes on life insurance is as simple as filling out the form on the side of this page. Unfortunately getting quotes for all the different types of life insurance available to you is going to take talking to someone. The quote form we provide on tfainsuranceadvisors.com is designed to only provide term life insurance quotes. While this works great for most people, we understand that EVERYBODY’S needs are DIFFERENT. If you are interested in obtaining more information on other types of life insurance plans, please complete the quote form on this page and one of our life insurance agents will reach out to you and help you select the best policy for your specific needs. You will only be contacted by one life insurance agent.
With all types of life insurance plans to choose from today, it helps to have a friend on your side who can help you choose the coverage that will fit your needs best. So, contact us today – we’re here to help.
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Ready to get started?
Start your free quote or get in touch.