The different types of life insurance policies and their pros and cons may seem complicated, but it’s not that hard once you know the basics. Below are five (5) major types of life insurance policies:
Whole life insurance
Whole life insurance is exactly what it sounds like: life insurance for your whole life that pays out to your beneficiaries when you die. Premium payment costs are usually locked in at the time of purchase, meaning the payments won’t change while you own your policy. The younger and healthier you buy, the cheaper your payments will likely be.
Universal life insurance
Unlike whole life insurance, universal life insurance offers more flexibility, specifically when it comes to premium payments, the amount of the death benefit, and the savings/investment portion of the policy. Universal life insurance policyholders can change the amount and frequency of premiums payments, so long as the first premium payment is made. This allows you to build investment savings and have a life insurance policy at the same time.
Term life insurance
life insurance is life insurance that is only active for a time
period. If you die during this period, the person or people you’ve
named as beneficiaries get the cash payout of the policy. If you live
past the term period, your coverage ends, and you get nothing back.
However, many term life insurance policies let you convert them to a
whole life insurance policy, so you don’t lose
Typically, term life insurance policy premium payments (what you pay per month or year into your policy) are not locked in at the time of purchase, so every five or ten years you own the policy, your premiums could rise. The benefit of term life insurance policies is that they’re often a much higher coverage amount than other kinds of life insurances, meaning your beneficiaries could get a lot more money than if you had whole life insurance policy. They also tend to be cheaper overall than whole life, unless you buy a whole life insurance policy when you’re young.
Variable life insurance
Variable life insurance can be described as permanent life insurance with an investment component. The policy’s cash value can be invested in sub-accounts, and this has the potential to grow as the investments in those sub-accounts grow. On the other hand, the cash value might decrease if the investments decline.
Accidental and dismemberment life insurance
Accidental and dismemberment life insurance is usually a rider to a health insurance or life insurance policy. The rider covers the unintentional death or dismemberment of the insured. Dismemberment includes the loss –or the loss of use – of body parts or functions (e.g., limbs, speech, eyesight, and hearing). Because of coverage limitations, prospective buyers should carefully read the terms of the policy. Because accidental and dismemberment life insurance is limited and generally covers unlikely events, it is supplemental life insurance and not an acceptable substitute for term life insurance.
Derek P. Bliedung is a former Primerica licensee insurance agent who later started the Columbus Financial Success & Coach, to bring members of the society from financial hardship to financing thriving.