Life is busy and hectic, and it is easy to let those important jobs sink to the bottom of our to-do list, only realizing we have omitted them when it is too late.
Life insurance is an essential all of us should be prioritizing. It offers financial protection to your beneficiaries, takes care of your assets, and provides peace of mind that those you love will be looked after.
There is a range of different types of life insurance, and it is important to do your research to ensure that you get the best fit for you and your family.
Types of Life Insurance
Your final decision will depend on a range of factors, such as how long you want to pay the policy for, how long it needs to last, and how much you want to pay. Here are some of the key types of life insurance you should be aware of:
Term life insurance
This option takes the complicated factors out of life insurance, boiling it down to two key decisions:
- How much do you want?
- How long do you want it to last?
It is the simplest option, is easy to understand, and is often the cheapest way to purchase your policy.
You have the option of smaller policies, which offer coverage of around $50,000 or plans which go into the millions. You can also be flexible with the lengths of your term, with options including 10, 15, 20, 25 or 30 years.
Term life insurance policies usually the cheapest option with the chance to lock in your price for the length of the policy. You will pay an annual or monthly premium, and these can change when it comes to renewal time.
The renewal format is one of the downsides of these types of policies. When it expires, you will need to buy another policy, and this is subject to change your premium.
Whole life insurance
An alternative to term life insurance is whole life insurance. Whole life insurance policies allow you to set the policy, pay the monthly premiums, and be covered for your entire life.
Payments remain the same over your lifetime, and in return, your loved ones will get a guaranteed payout in the event of your death. You also benefit from a cash-value investment on the policy, meaning you could make a profit if you wanted to cash out at a later date.
On the downside, it is often one of the more expensive options.
Guaranteed Universal life insurance
A universal life insurance policy works to make your life easier and offers a specific death benefit to be paid to your beneficiaries in the event of your death.
Your payments will stay the same throughout, but if you miss one, you may forfeit the policy.
This aspect can make it tricky if you are worried that future health or financial issues could mean you are at risk of missing a payment.
There is no cash value included, and this means that if you forfeit payment and lose the policy, you can walk away with nothing. On the plus side, this is often one of the cheaper options when it comes to universal life insurance.
You also have the freedom to choose the age at which you want the death benefit to be guaranteed.
Indexed Universal life insurance
Indexed universal life insurance works by linking the cash value component of your policy to a regulated stock market index, such as the Standard and Poor’s 500.
The gains you may make are predetermined by a formula which will be outlined in your policy. You will be able to access a cash value, and this will grow over time.
It is linked directly to the stock market. If the market goes up, you will benefit, and any payments or death benefit amounts are flexible.
You will have the option to skip or decrease payments, as long as you ensure that your cash value is enough to cover the insurance costs. Your death benefit can also be changed as your family evolves and changes, making this a flexible option which can be tailored to you.
The participation rate tells you the amount your cash value will participate in any gains. As an example, if your participation rate is 80 percent, and the S&P 500 increased by 10 percent, you will receive a return of 8 percent.
Should the index decrease, you will get a zero rate of return, though some policies may offer a guaranteed interest rate if the market goes down.
You will also need to consider the cap, which limits the amount of cash value you can get, regardless of how high the market goes.
Remember, only a small portion of your total payments will go into the cash value component, and as this cash value will not be able to take advantage of the stock market fully, there are limits as to the amount you can benefit.
Variable Universal life insurance, and Variable life insurance
Both of these options allow you to tie your total cash value to investment accounts including money market and equity accounts, or bonds.
The ever-changing market can mean that the investment account is high risk, and your cash value can change depending on the market. One of the benefits of having cash value, however, is that you can withdraw partial loans against it.
You also have the chance to make large gains, if the market is doing well. One of the disadvantages of these policies is that they require you to be super hands-on in handling and managing your policy.
It can be confusing to get your head around, so it can be a good idea to access a financial advisor who can make sure you are always getting the best deals.
No Medical Exam Life Insurance
Most life insurance requires that you go through underwriting, which means taking a medical exam. If you have a pre-existing condition that prevents you from getting a policy through underwriting or want to avoid the exam all together, you can opt for a no medical exam policy.
Fully Underwritten No Exam Policies
With better methods for using the medical data available, there are now companies that will do fully underwritten term life insurance withou requiring a medical examination. These companies include:
- Haven Life
- Ladder Life
The advantage to this type of no exam policy is that you get the convenience of quicker coverage while enjoying the low life insurance rates of a fully underwritten policy.
Final Thoughts on the Types of Life Insurance
Choosing the right type of life insurance policy can be difficult, and there is a range of options available. Just like any type of insurance, you want to do your research.
Deciding which type of life insurance policy is the best for you and your family depends on a variety of factors, including how much you want to pay, the length of your term, and the benefits you want to enjoy.