So you’re in the market to buy a life insurance policy.
The first question that you need to ask yourself is – “what type of life insurance should I buy?”
The goal of this post, “Life Insurance Types Explained” is to help you understand your options.
Once you get an idea of your options, you can select the appropriate coverage to meet your goals.
Let’s get started.
Different Types of Life Insurance Explained
Life insurance is sometimes thought of as a singular product. “I’m going to buy some life insurance” and then that’s it – you’re done.
Unfortunately, it isn’t that simple of a purchase.
Buying life insurance is sort of like buying a computer.
The type of computer will be determined with what you’re planning on using it for.
- Do you need a computer to just check emails and surf the web?
- Do you need it for video editing and gaming?
- Will it be used for business?
Each of these situations will determine how much computer power you’d need.
This post will help you make sense of all of your life insurance choices.
In general, you’re going to want to know the difference between Term, Universal and Whole Life insurance. After understanding the pluses and minuses of each type of life insurance, you should feel comfortable choosing the best policy to protect you and your family.
Term Life Insurance Explained
A term life insurance policy will typically be your least expensive option.
It is the most popular life insurance plan as well as the easiest to understand.
The reason it is easy to understand is it is a very basic policy.
With term life, you pick the death benefit amount and the term length. That’s it.
In some cases, an exam is not even required.
Your rates stay the same for the length of the term.
If you choose a $100,000 term life insurance policy for 20 years and your rate is $45 per month. That’s what you’ll pay for 20 years.
The most popular term lengths for term life insurance are the following:
- 10 Year Term
- 20 Year Term
- 30 Year Term
There are other term lengths available depending on the life insurance company.
For example, some life insurance companies offer 1 Annual Renewable Term, 5 year term and 25 year term.
In addition to a “straight term policy” which is usually referred to as a traditional life insurance policy, you have riders, which can cover children and adults in lots of different ways.
On top of these, you have increasing premium term group life insurance and decreasing term for mortgages, too. There are more types of term than any other.
Permanent Life Insurance Explained
If you’re shopping for lifetime coverage or cash value, a permanent life insurance policy would be appropriate.
When you buy a permanent life insurance policy, you won’t have a time limit on the death benefit like you do with Term Life insurance.
Permanent life insurance policies that have a cash value account can build over time.
You will eventually be able to take policy loans against it or draw money from it.
The permanent life insurance policies that have cash value are:
- Whole Life Insurance
- Universal Life Insurance*
- Index Universal Life Insurance
- Variable Universal Life Insurance
Let’s look into these permanent life insurance types and see how they’re similar and different.
Whole Life Insurance
Whole life insurance is also called traditional life insurance and it is the oldest form of life insurance.
It is made to provide you with life insurance coverage for your entire life.
Whole life insurance will have a fixed premium that will not change for the life of your policy. Your death benefit will also be fixed. Over time, your whole life insurance policy will grow a cash value.
The whole life policy is designed (typically) to be paid and fully funded up to age 100. If you passed away prior to age 100, your death benefit would be paid to your beneficiary. Your entire death benefit would be paid unless policy loans were taken.
If there are outstanding policy loans, it would decrease the death benefit depending on the amounts withdrawn.
Universal Life Insurance Explained
Flexibility is the key feature with Universal Life insurance. With a universal life insurance policy, you can have premiums that are flexible. This is a great option for those that need some flexibility when it comes to paying life insurance premiums.
You need to be careful, however. Your universal life insurance policy can lapse if you aren’t careful. You must make sure that you always pay the minimum premium that is shown within your policy.
Index Universal Life Insurance Explained
The Index Universal Life policy differs from other types of permanent policies in that its cash value growth is based around the equity index performance. Which equity index does it use? It is usually, but not always, the S&P 500. Be sure that you request which equity index your company uses.
Your IUL has a guaranteed minimum interest rate that protects you if the indexes go down. How are the guarantees structured? They are based on the company’s financial strength and claims-paying ability.
Variable Universal Life Insurance Explained
A Variable Universal Life insurance policy differs from other permanent policies in that it provides you the possibility of a larger return based on its investments in the market. Your VUL has investment options which can be altered with a changing market.
It isn’t all roses and sunshine – it’s possible that you could lose value with the VUL. The Variable Universal Life doesn’t come with a minimum cash value. The VUL also has fees and charges that the other permanent policies do not have.
Guaranteed Universal Life Insurance Explained
Although it falls in the permanent life insurance category, GUL isn’t designed for cash value, but rather for burial.
Guaranteed Universal Life is a great product for those seeking lifetime coverage that is less expensive than traditional permanent products according to CFA Insure.
Guaranteed Universal Life has some similarities to Term Life in that you select a duration of coverage. How it differs from Term is that you select an “Age” instead of a “Term.
For example, with Term, you have the option of selecting a term length of:
- 10 years
- 20 years
- 30 years
With a Guaranteed Universal Life policy, you don’t select a term length -You select your age. You have the option of coverage to the following ages:
- Age 90
- Age 95
- Age 100
- Age 105
- Age 110
- Age 121
So let’s say you’re shopping for life insurance and you’re currently 50 years old. You could shop for a Guaranteed Universal Life insurance policy to Age 100. That would provide coverage for the next 50 years.
We always suggest selecting Age 121 when buying a GUL for a true lifetime option and peace of mind.
Final Thoughts on Life Insurance Explained
Now that you have a good understanding of the different types of life insurance, you need to shop carefully.
Make sure you work with an independent life insurance agent or broker.
Independent life insurance agents have access to multiple life insurance companies.
Having access to many companies will allow them to find the best life insurance companies for you. They will be your personal shoppers and research the life insurance companies that will offer you the lowest rates. Your agent will provide you all of your term vs whole life insurance options.
Whether you want term life, permanent life, or a no medical exam life insurance policy – your agent should be searching for many companies for you. We work with over 40 top rated life insurance companies in order to provide our clients with the most options at the lowest rates.
Give us a call today at 888-411-1329 and let us help you protect what is most important to you with a free personalized quote.
You can also complete the “Instant Quotes” on this page to give you an idea of rates.
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