Purchasing the right policy can give you peace of mind and offer your family financial security for years to come. But how do you know which type of life insurance policy is right for you? To help you narrow down your choices, here’s a brief overview of the different types of life insurance plans available.
Term life insurance is one of the easiest, most flexible, and most cost-effective life insurance options out there. These plans allow you to buy life insurance for a specific length of time, or “term.” With a term life plan, you have control over the amount of coverage and the length of the policy, which usually lasts anywhere from 10 to 30 years. The premiums you pay go toward a guaranteed cash payment, which your family will receive if you pass away while your policy is active.
With level term life, your monthly premium will stay the same, no matter how long your policy term is. If you pass away at any point during the policy, your family will receive a set amount of money. For example, if you have a $250,000 policy, your family will receive the full $250,000, whether you’ve been paying premiums for a few years or a few decades.
As the name suggests, decreasing term life insurance provides a guaranteed death benefit that declines the longer you have the plan. Every month or year during the policy, your coverage will lessen a little, leaving a smaller payment for your family at the end of the term. Since these plans have lower premiums than most similar plans, decreasing term life insurance can be ideal for people with specific medical or financial circumstances, like paying off a loan over a set number of years, and anyone looking for temporary coverage.
Mortgage protection life insurance pays the balance of your mortgage after your death. Though your family won’t receive a death benefit payment, they will have the security of a fully paid home.
The opposite of decreasing term, increasing term life insurance coverage and benefits grow every month or year you have the policy. If you’re healthy and plan on making big life changes, such as starting a family or buying a new home, this could be a good option for you.
Renewable term plans allow you to extend your life insurance coverage past its original end date. If you still have significant financial needs when your policy ends, like dependent children or a mortgage, these policies make it easy to ensure that your family’s financial needs are covered. Though the premiums tend to be more expensive than other types of term life insurance, renewable terms can help make sure you have coverage when you need it.
Unlike term life insurance, permanent life insurance is designed to last your entire life. These plans pay a guaranteed death benefit to your beneficiaries after you pass away, and often allow you to build up cash value over time. There are multiple types of permanent life insurance, so you can easily find a policy that works for your family.
Variable life insurance offers permanent coverage and benefits for your entire life. In addition to offering a death benefit, this type of plan also allows you to build additional savings in a mutual fund-like vehicle. Unlike other types of permanent life insurance, the cash value grows or shrinks depending on the market, instead of gaining a guaranteed amount of interest. If you’re looking for an investment, variable life plans offer higher potential for growth than the average insurance plan, but also tend to be riskier and require more hands-on management.
With a cash value insurance plan, part of what you pay in premiums goes toward a cash value account. This account gains value as the premiums are paid based on a fixed interest rate. You can use these funds in many ways, including paying monthly premiums or as tax-deferred cash for everyday expenses.
Traditional whole life insurance is the most common type of permanent life insurance plan. It’s divided into two parts: a guaranteed death benefit component and a savings component that you can eventually put toward premium payments or withdraw as cash if you don’t need the policy anymore. The plan lasts as long as you pay the premiums, and the account’s value will continue to increase at a steady rate. With whole life insurance, you can feel confident your cash value will increase at a guaranteed rate.
Universal life insurance is a type of permanent life insurance that gives you the freedom to adjust your premium and death benefit amounts as needed, as long as you pay the minimum premium amount. This can help you stay covered, even if your financial situation changes. With universal life plans, the cash value of your insurance may go up and down, but it will always earn at least a minimum rate of interest.
Explored term and permanent coverage and still wondering, “What type of life insurance should I get?” These plans are designed to cover special situations, whether you need a policy quickly or are specifically looking to pay funeral costs.
Simplified issue allows you to get coverage based on a short health survey, rather than taking a full medical exam. While the premiums tend to be slightly higher, this can be a good option if you’re looking to get covered quickly.
These insurance plans help you and your family cover end-of-life expenses, including medical bills and funeral costs. They’re usually offered to people above a certain age, generally between 50 and 85. For people who don’t need or don’t qualify for traditional life insurance, final expense insurance can help make sure your family is prepared to handle any final expenses after your death.
For people with serious health issues, guaranteed issue life insurance offers a way to provide financial protection to their family – no matter what. These plans don’t require you to take a medical exam or answer any questions about your health, and the approval process is typically faster than traditional life insurance. While the premiums tend to be higher than other types of life insurance, guaranteed issue life insurance is an ideal option for people who don’t qualify for traditional life insurance.
Group life insurance is typically provided by your employer, often at little or no cost. The coverage amounts tend to be lower than in an individual plan, though, so group life insurance might not provide enough protection for your loved ones. If you change jobs, your group life insurance usually won’t transfer with you, either.
This type of policy covers you and one other person, usually a spouse, paying a guaranteed death benefit to the plan’s beneficiaries after both of you have passed on. With a survivorship policy, you only need to get one plan for both earners in your family, making it ideal for married couples and parents.
Riders are optional benefits you can add to your life insurance plan for an extra cost to customize your coverage around your exact needs. Options include riders to cover some funeral costs and end-of-life medical expenses, pay a benefit if you’re diagnosed with a serious illness or die in an accident, pay your policy premiums if you become disabled, and pay benefits if you need long-term care.
What are the types of life insurance to consider before you buy? Compare options below to determine which policy best suits your and your family’s needs.
| Length of Coverage | Premiums | Medical Exam Required? | Builds Cash Value? | |
|---|---|---|---|---|
| Term Life | You choose a term length (10, 15, 20, 30 years) based on your needs. | This is the most affordable type of coverage. | Typically yes. | No |
| Permanent Life | Your coverage lasts your lifetime, as long as you pay your premium. | You’ll pay more than term life in exchange for lifelong coverage. | Typically yes. | Yes |
| Final Expense | Your coverage lasts your lifetime, as long as you pay your premium. | Premiums are still more expensive than term, but lower coverage amounts keep it affordable. | No medical exam required, but you may need to answer some health questions. | Yes |
| Simplified Issue | Term and permanent options are available. | Simplified insurance premiums typically cost a bit more than medically underwritten term life insurance. | No medical exam required, but you may need to answer some health questions. | Yes |
| Guaranteed Issue | Your coverage lasts your entire lifetime. | Guaranteed issue is more expensive than other types of life insurance policies. | No | Yes |
Different types of life insurance policies serve different purposes. For example, variable life insurance may enable you to use your premiums to build savings, while a term plan provides affordable security and peace of mind for a set period of time. When asking yourself, “What type of life insurance policy do I need?,” think about your family’s unique circumstances. You might want to consider factors like your health, your financial situation, any big upcoming life changes, and your family’s future goals.
With so many types of life insurance policies available, choosing the right insurance company and policy can feel like a challenge. At eFinancial, we want to make your best choice an easy one by allowing you to shop, compare, and buy life insurance with confidence. Our team will listen to your needs and help you find the best type of life insurance for you.
