So, you’ve decided to start shopping for life insurance! It’s important to enjoy everything that life has to offer, but sometimes you need to think about what will happen after you pass away. If you have dependents who rely on you and your income, then you should consider a life insurance policy to keep them financially secure. But with so many different types of life insurance, how do you choose the right policy? In this blog, we will discuss the different types of life insurance so you can decide which is the best policy for life insurance.
Two Main Types of Life Insurance
Finding the right policy for you and your family will depend on your personal circumstances. Start by asking yourself: how much coverage do I need, and how much do I want to pay for it? Those basic guidelines will set the course for how much coverage you want to have.
When you shop for life insurance, there are two main types to choose from: term life insurance and permanent life insurance.
Term is the most popular type of coverage and lasts for a specific set of years (usually 10-30). If you pass while the policy is still in effect, your beneficiaries will receive an insurance payout. If you are looking for a more affordable option, term life insurance is a simple plan that will provide your loved ones with a financially safe net income.
Permanent lasts your entire life and provides a death benefit for your beneficiaries as long as your premiums are paid for. If you view life insurance as more of an investment tool, then this is a good option for you. It allows you to have guaranteed coverage while considering other options. If you have dependents who require lifelong care, or your personal profile might disqualify you from getting approved for traditional life insurance, then these are some more reasons why you might consider permanent life insurance.
If you feel like you need more options, there are three different subsets of permanent life insurance to choose from: Indexed Universal Life, Whole Life, and Guaranteed Universal Life. But before we get into those, let’s go over some common elements of a life insurance policy you should be familiar with.
Common Elements
Beneficiary– The people who receive the policy’s payout when the insured passes away. You can choose anyone to be your beneficiary with only a few restrictions. Most people choose their spouse or close family member. But you can also choose a trust, business partner, or charitable organization. You can have multiple beneficiaries by specifying the percent of your death benefit. An example would be leaving 80% to your spouse, 10% to another family member, and the last 10% to a charitable organization.
Cash Value– An investment-like feature that comes with many permanent life insurance policies that provides a separate tax-deferred account within your policy, earning interest at a fixed rate. You can use the cash value to take out a loan or pay your premium. Cash value life insurance isn’t as high as traditional investments and are only useful for those who have a specific need for permanent coverage or have already maxed out contributions through other investments.
Death Benefit– The amount of money your beneficiaries receive when you die.
Policy Length– How long your policy will be active? With term, it is for a fixed rate, typically between 10, 20, or 30 years. Permanent policies last your entire life.
Premium– The money you pay to keep your policy active! Payments are made monthly or annually.
Different Types of Permanent Life Insurance
Permanent life insurance can offer coverage forever. It comes with all kinds of saving opportunities, so the only real difference between the three different types offered is the cash-value element.
Whole Life provides lifelong protection as long as premiums are paid–unlike term life insurance which offers coverage for a specific period. With this type, you pay premiums until age 100 and cash value typically earns dividends or a fixed interest rate yearly.
One of the key features of whole life insurance is its cash value component. As policyholders make premium payments, a portion of the premium is allocated toward the policy’s cash value. This cash value can be accessed by the policyholder through policy loans or withdrawals. The cash provides a valuable source of liquidity for various financial needs, such as supplementing retirement income or covering unforeseen expenses.
Indexed Universal Life is typically less expensive than whole life insurance. This is because the premiums are flexible when you need them to be. Cash value can be used for policy loans and withdrawals, but is tied to the market indexes. This means that when interest rates are higher, the cash value earns more money.
Guaranteed Universal Life is similar to a term life insurance policy but it lasts until the age you choose. Premiums always stay the same and the death benefit never decreases. This policy provides a no-lapse guarantee as long as premiums are paid as outlined with policy loans may affect this if used. The cash value is built in small amounts but is only used to supplement premiums in later years.
If you are still curious about how mortgage, debt, beneficiary duration and savings will all play together, Arlington Greene has a free Life Insurance Calculator! It’s easy to use. If you have any questions we also offer free quotes from our trusted advisors.
Ready to Decide on a Life Insurance Policy?
Coming to a decision about life insurance can be so much to consider. With so many different policies it can be hard to determine what you need, all on your own. At Arlington Greene, we have experts in the life insurance field who are ready to help. Arlington offers all the same policies that you would find going directly through a specific insurance company. We can also help you find the right coverage at the best rates by comparing all side-by-side. We are a small family-owned business with the goal to provide the best service to all our clients. No matter which policy you decide to go with, our team can help. We can curate a plan just for you—guiding your family into securing your financial future!