Many of us are seriously unaware of the fact that there are different types of life insurance policies. Those who know about the types feel it confusing to choose the right policy. For both of them, this post introduces the different types of insurance policies along with their ideal use.
Whole Life Insurance
This is among the most popular policies in the category of permanent insurance deals. A whole life insurance policy comes with a premium and the coverage amount, which remain fixed throughout its tenure. You lock the premium amount until the duration for which you want the policy.
You pay a monthly premium and a part of it contributes to the cash value that increases over the whole policy life. The longer the policy duration, the more is the cash value. As you keep paying a premium for your full life, you end up more for less insurance.
You are also required to adhere to medical underwriting, meaning the insurer will ask about your health and lifestyle to set the pricing. Even a medical exam is highly possible. This kind of policy is ideal for those who seek lifetime coverage for paying premiums on time. The cash value could be a bonus for your retired life.
Universal Life Insurance
Consider this option if you want permanent coverage but with flexible premiums to be paid each year. Yes, this is similar to a whole life policy with cash value growing over time. However, you can use some cash value to tweak the yearly payment.
However, you will have to pay a minimum premium amount each month. Nevertheless, you may be able to get rid of premium payment as per the cash value gathered or allow cash value to grow over time.
Essentially, a portion of your monthly premium is contributed to savings and the other part makes up the death benefit. The underlying notion is to boost the investment with time such that it can offset premiums. Just keep an eye on financial changes due to the concept of flexible premiums.
This kind of policy is ideal for those who are looking for flexibility and a more affordable option than a whole life policy.
Term Life Insurance
This is perhaps the most affordable and the easiest type of life insurance policy to purchase. It pays a fixed amount to those whom you select as the beneficiaries. It gives reliable coverage that lasts for a specific term such as 10 or 20 years. Once this term is over, you may renew it but with a greater price this time.
This type of policy is a popular choice of many, as it provides coverage to your loved ones proactively at a reasonable price. As per the coverage amount and tenure, the policy may provide life insurance protection until the spouse is retired or the debt is repaid.
You pay monthly premiums here too. If you pass away during the policy’s term, the insurance company will pay the insured sum, also known as the death benefit to the beneficiaries. It is recommended to buy a term life insurance policy that is at least 10 times more than the annual income.
Guaranteed Issue Life Insurance (Finance Expense)
This is a type of permanent life insurance policy that assures approval on coverage irrespective of health or age. It is also known as a final expense policy, as it helps in paying for your funeral and other costs related to your natural death.
This no-exam life insurance policy is confined to a maximum death benefit, which is usually less for the long-term requirements of your financial dependents. They receive the full benefit only if some years have gone by. This clause prevents buying this policy when the insured knows about short life expectancy.
It is a good policy if health matters stop you from choosing a medically underwritten policy.