The Different Kinds of Life Insurance Explained

by Evan
Elderly couple signing life insurance contract

It is beneficial to know about the different kinds of life insurance. You can check out our detailed guide here to learn more.

Did you know that 60% of Americans have life insurance? The findings from the Insurance Barometer Study further show that one in every five people with life insurance feel that it’s not enough. The misconceptions about life insurance have made it hard for some people to make this critical investment.

With the multiple life insurance options available, choosing one policy over the other can place you in a dilemma. Are you aware of the different life policies available? Which life policy is best for you? 

Knowing the different kinds of life insurance will give you an edge when shopping for a cover. Check out this guide to learn more about the types of life insurance. 

Term Life Insurance 

Term life insurance is probably the most popular life cover as it is affordable and easy to understand. This type of insurance only focuses on paying the people you have listed as your beneficiaries, such as spouses and children. The amount they receive after your death is often fixed. 

The coverage lengths for typical life insurance is between five and thirty years. The insurance is inexpensive as you’re only getting coverage for a specific period, unlike other policies where you have to pay for a cash value.

If you’re in a situation such as a mortgage payment, life insurance is ideal. However, you’ll find the insurance unworthy if you don’t die within the term of the cover. You will have to renew your term life policy if you outlive it, which is inevitably costly as you’ll have advanced in age.

Despite the apparent downside of term life insurance, it is one of the best covers. Your family won’t suffer unnecessary financial constraints upon your demise. The death benefit that your beneficiaries will get can help to clear the mortgage and take your children through school.

Universal Life Insurance 

Universal life insurance is like a hybrid policy that combines some components of term life insurance and investment savings. It borders on helping policyholders to save while still offering a life cover.

Universal insurance isn’t easily understandable due to the varieties, which have diverse features. Yet, it provides lifelong coverage. The features of universal life insurance make it more costly than term life coverage.  

Understanding how this life insurance works will guide you in determining whether it’s the ideal option. The best time to invest in universal life insurance is when you’re in your 20s or early 30s to ensure that you have adequate time to grow your assets.  

Some universal life policies don’t guarantee you gains, which can be discouraging if you’re interested in the cash value. More importantly, you might have to stay on your policy’s top status to ensure that the policy charges aren’t depleting your cash value. 

Whole Life Insurance

Just as the name suggests, whole life insurance is a permanent cover. This type of insurance involves a premium structure, which builds cash value with time. With whole life insurance, the cash value tends to grow as long as you make timely payments. 

The more you stay with your life policy, the more cash value you’ll get. The whole life policy is akin to a savings account, which will benefit your dependents upon your death. This coverage is appealing, as the death benefit is a guarantee.

Whole life insurance companies often give dividend payments to policyholders. The dividend payments depend on the company’s performance in the previous year. The rate you’ll get is multiplied by the policy’s cash value. 

When analyzing the different kinds of life insurance, checking the cost is inevitable. In fact, cost implication is one of the main issues that has made about half of Americans to ignore life insurance. The whole life insurance policy is one of the most expensive covers. 

Variable Universal Life Insurance 

The variable universal life covers are almost similar to universal life and whole life policies. They are equally complex. Variable universal life insurance acts as a cover, mutual fund, and savings account at the same time.

This life insurance policy allows you to determine the best way to invest your cash value. You can choose from the myriads of bonds and stocks, which can be risky. The insurer will present you with a myriad of investment options to choose an idea that you deem appropriate based on your cash value.

The aspect of choice on where to invest is the ‘variable’ bit of the policy. It is essential to understand that you’re solely responsible for any risks you encounter. These policies offer no guarantee on the cash value.

A variable life insurance policy is quite expensive. It’s an unpleasant insurance option as the management fee can be high. Unless you don’t mind making a risky investment for your cash value, the variable universal life insurance policy is not consumer-friendly.

Simplified Issue Life Insurance 

Applying for life insurance necessitates you to undergo a paramedical exam as part of the underwriting process. The results inform the insurance company how risky it is to insure you. The medical results guide companies in setting the appropriate premium rates.

When you take a simplified issue life insurance, the medical exam isn’t necessary. As such, this cover is often referred to as the ‘no exam policy.’ However, you have to fill a health questionnaire for the insurer to determine the ideal premium.

If you’re in a hurry, this policy is one of the types of life insurance plans that will save you time. However, an insurer might require you to take a medical exam if you’re in poor health. 

With the Different Kinds of Life Insurance, You Can’t Afford to Be Uninsured 

Life insurance is as vital as many other policies that we prioritize. It would be best to ensure that those you’re living behind will be financially secure. Fortunately, there are different kinds of life insurance. 

Your choice of an insurance plan will depend on the needs that you want the policy to meet. Once you know about each type of life insurance, making an informed choice will be easier.

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