The Different Types of Life Insurance
There are two types of life insurance you can buy. The first is term life insurance, and the second is permanent life insurance (available for purchase as whole life or universal life insurance). Each type of life insurance meets very different needs. Deciding between the two starts with learning more about your needs, followed by aligning your goals with the way each of these policies works. We created a flow chart below that can help you choose between the different types of life insurance policies. So let’s get started.
Life Insurance Types.
Term Life Insurance.
Term life insurance is a temporary policy that does not build cash value, and only last a specific length of time of your choosing. The two main types of Term life insurance are: Level Term and Annual Renewable. Term life insurance is the most affordable type of policy.
Permanent Life Insurance.
Permanent life insurance is one of several related policies that builds cash value. These policies include Whole Life, Universal Life and Variable Universal Life. Permanent life insurance is a more expensive life insurance policy.
See how much each type cost here.
How to choose the type of life insurance you need. Flow Chart:
Choosing the best type of life insurance for you will depend on several factors. Most importantly, why you need the coverage, what is your budget, and your health. All these factors will play a part in determining the proper type of policy. We have put together this flow chart to help understand which type may be best for your situation.
Permanent Life Insurance will Cover Your Long-Term Life Needs.
There are two types of Permanent life insurance:
1. Whole Life
2. Universal Life
Each policy will last the duration of your life, but there are some significant differences between these two types of life insurance policies. For example: The cost of the insurance itself – including the factors that determine pricing and flexibility of premiums – vary greatly. Universal life insurance offers lower premiums than a whole life insurance policy and you can still get the permanent protection you may need.
Universal Life vs Whole Life
Whole Life insurance offers guaranteed level premiums and protection for as long as you live, contingent on the regular payment of premiums. The advantages of Whole Life insurance further include death benefits and access to the cash value of the policy. This coverage may also enable you to receive dividends, increasing the worth of the policy while you are alive or expanding the death benefit for your beneficiaries. Along with the chance to pay a single premium or premiums until you reach 100, or premiums payable within a more limited amount of time, Whole Life insurance gives you the financial freedom you may want.
There are different types of universal life insurance policies, of which there are only two that we recommend: Guaranteed Universal Life (GUL) and Indexed Universal Life (Indexed UL).
These concepts can be difficult to understand, so we seek to explain these ideas in an intelligible manner.
A Guaranteed Universal Life (GUL) policy will last until a person is 121. It is the most affordable way to get permanent life insurance. It also builds cash value during the early years of the policy, but that amount erodes over time. The guarantee ensures that the policy never lapses, even when the cash runs out and the cost of the insurance is more than the premiums paid for the policy.
An Indexed Universal Life (Indexed UL) is a relatively new concept within the life insurance industry. It offers the same permanent protection, but the way the cash value grows is different. Growth is the result of performance, similar to indices like the S&P 500 or the NASDAQ 100. And, even though the interest is credited by the performance of an index, you are not technically invested in the financial markets. Or: An Indexed UL is not a variable policy. That means there is no downside involving stock market risk. An Indexed UL gives you a chance to have more cash value, period.
Term Life insurance is the most affordable kind of insurance you can buy. If you want a greater death benefit, and do not need life insurance on a permanent basis, then Term Life insurance is an attractive alternative. Choosing Term Life over Permanent life insurance can nonetheless be difficult, requiring the expertise and guidance of an independent life insurance professional.
Annual Renewable Term.
Annual Renewable Term is another form of life insurance, where the initial premiums are low and increase on a yearly schedule. As you age, these premiums often rise dramatically. These costs make this option too expensive and prohibitive for many people.
Level Term is a common type of Term Life insurance. Most insurers offer Level Term policies that last, respectively, 10, 15, 20 and 30 years. Upon completing the underwriting process, and approval of your application, you can secure your rates for the duration of the term.
Decreasing Term life insurance is a generally outdated type of Term life insurance. In fact, many companies no longer offer this policy. Plus it’s a waste of money.
“85% of people say they need life insurance, yet only 62% have coverage.”