Life insurance may not seem like a priority when you are in good health. However, it is a necessity for anyone looking to protect their loved ones in the event of death. Luckily, there are different types of life insurance to suit different needs.
The right choice depends on how much you are willing to pay in monthly premiums, whether you plan to use the policy as an investment, and how long you want it to last.
Here are the different types of life insurance.
- Term Life Insurance
This type of life insurance may come in lengths of 30, 25, 20, 25, 10, five, or one year. The coverage amount depends on your specific policy, and it could go as high as several million.
With a ‘level premium’ term life insurance policy, the same price is locked for as long as the policy lasts.
However, ‘annual renewable’ term life is renewed every year. Annual policies are ideal if you only need coverage for a short period or have short-term debt.
The best thing about term life insurance is its cost. It is the cheapest form of life insurance. It is enough to cover the average person. However, it has one main disadvantage. Your beneficiaries don’t get anything if you outlive the policy.
- Graded Life Insurance Policy
Graded life policies are types of whole life insurance. Many whole life insurance providers issue contracts that provide for graded benefits in the first few years of coverage.
The benefits pay a lower amount if death happens in the first few years of purchasing the policy. The death benefit is only increased to the face amount after your coverage has been in place for a specified period.
Life insurance providers use this technique to lower the cost of their policies, especially for less healthy people pursuing guaranteed issue coverage. Graded policies help insurance providers reduce the risk when accepting terminally ill patients.
- Whole Life Insurance
Usually, your life insurance policy lasts until you die. You simply need to keep up with premium payments. Your premiums don’t change, and you can easily ‘set it and forget it’. The premiums also give a guaranteed rate of return on your policy’s cash value. The death benefit amount doesn’t change either.
Even though it is more expensive than term life insurance, whole life insurance builds cash value. Its ability to cover you for your whole life is a great benefit as well.
- Guaranteed Universal Life Insurance
With this insurance, your premiums remain constant, and the death benefit is guaranteed. The policy carries minimal to no cash value. It lets you decide the age to which your death benefit is guaranteed. Because of its minimal cash value, this life insurance is pretty affordable.
- Indexed Universal Life Insurance
This universal policy links the cash value component of your policy to a stock market index. Therefore, a formula is used to determine your gains. The cash value grows over time, and you can access it. If the stock market performs well, you can record significant gains.
- Variable Life and Variable Universal Life Insurance
The cash value is linked to mutual funds, bonds, and other investment accounts in variable life and universal life insurance policies. Variable life insurance premiums are fixed, and they have guaranteed death benefits no matter how the market does.
However, with variable universal life insurance, the death benefits aren’t guaranteed, and premiums are adjustable.
Life insurance is an investment in the future of your loved ones. While there are many reasons to consider buying a life insurance policy, the core is to provide financial security for your dependents. Choose a policy that matches your current and future needs.