There are many different types of life insurance policy you can buy, ones that cover you for specific terms, ones that last a lifetime (however long that may be) ones that you can get without medical exams, and much more.
In this guide we’ll look at term vs whole life insurance, as well as the many other different types of life insurance you can get.
What is Term Life Insurance?
Term life insurance lasts for a specific time period, often between 10 and 30 years. The length of the time period will dictate how much you pay, but the amount that it pays out will play a bigger role.
A term life insurance only pays out if you die within the set period. They tend to be more generous with regards to the amounts that they pay as this get-out clause ensures that not all insurance policies will result in a cashout.
For instance, if you are 20 years old and healthy then you can get a 30 year term life insurance policy that pays out a lot of money and can be acquired for very little a month. But the odds of you living longer than this period are higher than the odds of you dying short of this period, so the life insurance company will likely be the one benefiting the most in the end.
These policies are best for people who want to secure their family during a tough period, as well as seniors who don’t expect to live beyond that time period.
What is Whole Life Insurance?
This is a form of life insurance that will payout when you die, regardless of how long it takes for that to happen. The value of the policy builds over time and can even be used to take out loans and to cover other expenses.
Term vs Whole Life Insurance
There are huge differences in these two policies. Your age, your health, your budget and the length of time that you expect to live will all factor into the equation as you decide which one is best for you.
It may be that you are young, expect to live a long time and want a lump sum that will increase in value and then eventually cash out. In such cases, a whole life insurance policy is best. It may be that you are older and simply want to secure your family for a short period of time without spending too much money every month. In these cases a term life insurance policy is best.
Pros of Term Life Insurance
- Very straightforward and easy to get to grips with.
- Much cheaper than other options.
- Can secure you for a limited period of time.
Cons of Term Life Insurance
- The policy may not cash out.
- You may need to buy another policy after this one expires.
Pros of Whole Life Insurance
- Does not expire.
- Provides better security over the long-term.
- Grows over time.
- Can be used to take out loans and cash advances.
Cons of Whole Life Insurance
- Can be very expensive.
- Not ideal for older customers.
What is Supplemental Life Insurance?
Supplemental life insurance is a type of life insurance that is given to you as part of your employee benefit package. This may be limited, it may not, but it’s something you should pay attention too because it may not provide the complete coverage that you seek.
Around half of all employees in the United States have some kind of life insurance policy offered to them as part of their employee benefit package, but according to a study conducted by the Life Insurance and Market Research Association only half of these people have actually participated in those benefits, and 14 out of 100 aren’t even aware that these benefits are being offered.
What is Universal Life Insurance?
A universal life insurance policy can act as the middle ground between the two options mentioned above and there are options here for younger and older policyholders.
Guaranteed Universal Life Insurance
There is no cash value in this policy like there is with a whole life insurance policy, but it does guarantee a death benefit, unlike a term life insurance policy. This could be ideal for seniors, as discussed in our Life Insurance for Seniors guide, and it shouldn’t matter how old you are.
However, the lack of cash value is a big con for some customers and the policy will also be completely forfeited if you miss a single payment. When you consider that the payment can be quite high and paid out over the course of many years this is a significant penalty that could hurt your finances.
Indexed Universal Life Insurance
When you take out an indexed universal life insurance policy the value of the policy will be attached to a stock market index, which means it increases and decreases in value depending on that index.
These policies follow a specific formula to determine how much you gain and how much you lose and it’s worth taking a closer look at this formula and how it will impact on your cash value before taking out a policy.
Variable Universal Life Insurance
With a variable universal life insurance policy your cash value is tied to an investment account, which means it is very similar to indexed universal life insurance, but instead of stocks it is tied to bonds and equity accounts.
These are high risk investments, which means there is a lot of potential to send the value of that money soaring. But at the same time the cash value could plummet and be worth nothing. That’s the risk you take with any investment and a variable universal life insurance policy is no different.
This policy will also change every day and there are also fees charged when you initially get the policy.
Underwritten Life Insurance
A life insurance policy that is underwritten means the company has taken a close look at it and determined how much of a risk you are and what maximum amount they will pay out. These policies only ever come after a full medical has taken place and they will also look at your lifestyle, taking into account everything from how much you smoke and how much you drink, to if your hobbies and your career involves regular risk-taking.