The different types of life insurance policies exist to help give a back-up for family should you pass away. The proceeds of the policy offer valuable financial comfort you can use to assist your family pay bills, such as the mortgage, day care, along with other day-to-day expenses. Buying life insurance is among the most selfless financial gestures you can make.
Coverage is a straightforward concept: In exchange for the benefit of being insured, you have to pay premiums to your life insurance coverage company, much like auto or health insurance.
Where life insurance coverage can become complicated, however, is when you're ready to pick the right insurance policy for your loved ones and your budget. We'll explain the different sorts of insurance coverage which exist to help you determine what could be the best fit for the family.
In this guide, we'll cover the different sorts of life policies open to you, including:
- Term life insurance
- Medically underwritten term life insurance
- Simplified issue term life insurance insurance
- Return of premium term life insurance
- Permanent life insurance
- Whole life insurance
- Universal life insurance
- Variable universal life insurance
- Guaranteed issue life insurance
- Accidental death insurance
What to think about when choosing a type of life insurance coverage
Before we dive in to the many different types of life insurance coverage available, think about these four key questions while you evaluate your options:
1. What role do you want life insurance coverage to experience in your overall financial plans?
If you are looking for affordable insurance policy to assist financially protect your family during the years they need it most, a phrase life policy is really a sound choice. If instead, you are looking for coverage throughout your life that builds cash value with time, permanent life insurance can be a better option.
2. Just how much are you able to afford?
Term life insurance allows buyers to get higher levels of coverage for any significantly less expensive compared to a permanent life insurance coverage, which could cost anywhere from 5 to 20 times more than a term life insurance policy.
3. How's your wellbeing?
If you're reasonably healthy, a medically underwritten policy are frequently the greater affordable option. If health is an issue, other available choices, for example guaranteed issue or accidental death policies (which we will discuss below), might be a better fit.
4. Is a digital purchasing option vital that you you?
Buying life insurance online may seem foreign to some. But assuming you're provided with the right tools, it's simple to choose a coverage amount, get sample quotes and make an application for coverage online. If approved, you may even be able to start coverage that same day.
Learn about term life insurance
This type of coverage is simple to know, simple to make an application for, and purchase. Term life provides dependable coverage at an affordable price. Because the name conveys, term coverage lasts for a particular time period – typically 10, 15, 20 or 30 years. When the term length expires, coverage ends, or renew it, but at a higher price.
Why is term life a well known choice? Because it offers coverage throughout the years your loved ones needs it most and also at an acceptable price. Depending on the term length and quantity of coverage you purchase, it might offer life insurance coverage protection before the mortgage is paid off, your lover is retired or perhaps your kids leave the house.
If you need assistance figuring out the right amount of coverage and term length for you, a web-based life insurance coverage calculator takes out the guesswork.
Term life insurance coverage itself comes in a few varieties, if you think it may be the right choice for you personally, here's what you should know.
Medically underwritten term life insurance insurance
Medically underwritten life policies are often the most affordable types of coverage. These policies consider your age, lifestyle choices, and private and family health history to find out eligibility and pricing that's personalized to you. Medically underwritten coverage also provides a more robust range of coverage options, from $100,000 to several million dollars.
Thanks to innovations in underwriting, some medically underwritten policies – like the Haven Term policy – can be bought with no medical exam for any subset of applicants that qualify to skip it. When a customer submits an application, they will be instantly notified as to whether they qualify to skip the medical exam or not. [Keep in your mind that it's always very important to be honest in the application process. The issuance from the policy or payment of advantages may depend upon the answers you allow within the application as well as your truthfulness.]
Medically underwritten term life insurance is generally pretty affordable. Here are some examples from the cost of coverage for nonsmokers in good and ideal health for a Haven Term policy, issued by MassMutual.
Get a quote for medically underwritten term life.
Who it may be a great fit for
Medically underwritten term life like the Haven Term policy is straightforward to know, easy to buy, and provides dependable coverage at a reasonable cost. This can be a great option if affordability is the main concern and you don't mind taking a health check, as needed. You can obtain a policy having a face amount of $500,000 or even more to help protect your loved ones if you were no longer within the picture. And you never know, maybe you will be among the lucky ones who qualifies to skip the medical exam.
Simplified issue life insurance
Simplified issue policies typically require applicants to complete a short questionnaire in the underwriting process, with a few health-related questions. No medical exam is required to apply and get a coverage decision.
Because no medical underwriting is conducted and because the insurer knows less about you, these policies are usually more expensive than a medically underwritten policy. Why? Generally, the more some insurance company understands about you, the greater affordable coverage might be.
Additionally, with simplified issue policies, maximum coverage amounts are usually limited to $500,000 or less. For example from the cost of coverage for any Haven Term Simplified policy, from C.M. Life insurance coverage Co., a MassMutual subsidiary. Quotes shown are for nonsmokers.
Get an estimate for simplified issue life insurance.
Who it might be a good fit for
Simplified issue life insurance, just like a Haven Term Simplified policy, can be a good option for those who know they absolutely don't want to have a medical exam. It's important to note that issuing the insurance policy or paying its benefits depends upon your insurability, based on your answers towards the health questions within the application, as well as your truthfulness.
Return of premium life insurance
One of the biggest reservations people have about term life insurance is the fact that you're paying premiums for any what-if scenario. And, in almost all cases, you hope the what-if won't happen.
And then where do those premiums go? The answer generally is that the insurance company keeps your premiums in order to pay out claims to beneficiaries of consumers who perish throughout their term. A notable exception is the return of premium policy.
A return of premium policy, which in some cases may also be an optional rider that's either readily available for a fee or is included as part of a term insurance plan, refunds the insurance premiums paid if you outlive the term of your policy. Generally, if you obtained a 30-year term life policy, for example, and lived past the amount of the policy, most or all of the premiums you paid get reimbursed to you. Yes, this is a lot of money coming back the right path – but return of premium riders often enhance the cost of your premiums significantly with this feature.
Let's perform a cost comparison. A 30-year-old man in excellent health could pay between $90 to $100 per month for any 20-year, $500,000 return of premium policy, according to State Farm. For the similar term length and face amount, a medically underwritten Haven Term policy, issued by MassMutual, would cost the same man under $37 monthly. So a return of premium policy will cost him a minimum of $12,700 more over the lifetime of the policy than medically underwritten term coverage.
Remember, the return of premium policyholder does get that money back after the term. However, a return of premium policy lets an insurance company earn interest in your money over time instead of you. Additionally, should you let the return of premium policy lapse prior to the term ends – due to canceling or no more paying premiums – you typically can't reclaim the premiums you already paid. It works limited to the end of the policy term from the policy.
Who it may be a good fit for
A return of premium policy may be a good fit for someone who desires term coverage as well as a way to recoup premiums paid should you outlive the coverage term of the policy.
Accidental death insurance
Accidental death insurance, also known as accidental / accident death and dismemberment or AD&D insurance, isn't technically term or permanent life insurance coverage, though we place it in the term life insurance section since it generally has a term length associated with how long coverage can last. An AD&D policy provides a lump sum payout for your loved ones should you passed away from an accident, like a motor vehicle accident, a workplace injury or a homicide. The part of this policy that provides dismemberment coverage may provide some form of living benefit when the policyholder is severely injured, paralyzed or loses a limb, although not all accidental / accident death policies include this provision.
These kinds of policies also don’t cover death from the kind of illness, like cancer, heart disease or stroke, that are some of the main reasons for death once we reach our 40s and beyond. The limitations on when a death benefit is paid can leave your family at financial risk, which means you should understand the fine print. It’s also important to note that many accidental death insurance policies are generally limit coverage to up to $500,000.
Who it may be a good fit for
An accidental death policy can be a good option if you've been declined term life because of health reasons since it is not medically underwritten.
Learn about permanent life insurance
If you want a life insurance coverage that lasts the rest of your life, then permanent life insurance coverage could be the right choice for you. Numerous kinds of life insurance coverage come under the umbrella of permanent life insurance. The most common are whole life and universal life. Unlike term, permanent policies provide coverage for a lifetime and can include a cash value component that can grow or shrink over time.
These features are why permanent policies can cost between Five to twenty times greater than a term life insurance policy. Due to the factor in premium costs, permanent policies could be less affordable for cost-conscious families.
When you have to pay for any permanent life insurance policy, area of the money keeps your protection in place as being a term policy would do. As well as for some permanent policies, another a part of your premium goes into a cash value feature.
This cash value component can build every year as you pay your premium, so over time, your policy can become more valuable. The policyholder may access their cash value, through partial surrender for a lump sum or loans, unconditionally, for example emergencies in order to help supplement their retirement income.
However, you need to know that accessing cash values through borrowing or partial surrenders will reduce the policy's cash value and death benefit, boost the chance the insurance policy will lapse and could result in a tax liability if the policy terminates before the death of the insured.
Permanent life insurance policies have long-term implications on your financial plans, therefore we recommend you consult an economic professional before buying an entire life policy. If you are interested in the benefits of this kind of policy, our parent company, MassMutual, has agents who would be happy to help.
Permanent life policies are available in several varieties with distinctions which are important since they will directly impact your premiums, coverage, and the overall complexity of handling the product.
Whole life insurance
Whole life insurance is one of the most widely used permanent types of life insurance coverage. It provides a coverage amount along with a level premium that won't change throughout the life of the insurance policy. Like several permanent policies, whole life can accumulate cash value with time.
Whole life coverage, like several permanent policies, requires medical underwriting, which means your insurance company will ask questions regarding your health, your family's health history, and your lifestyle and occupational choices in order to determine eligibility and pricing, and you'll be asked to have a medical exam.
To have an understanding of pricing for permanent policies, State Farm would provide a 30-year-old man in excellent health a $500,000 policy starting at approximately $460 monthly. It's lifetime coverage having a cash value component – it costs 20 times more monthly than a 20-year term life insurance policy for the same man. Of course, if you wish to continue a phrase policy after its term ends, you'd be confronted with much higher premiums.
Who it may be a great fit for
Whole life insurance might be a good option should you seek coverage that lasts an eternity and does not expire before you decide to pass away as long as the premiums are paid. The insurance policy supplies a cash value ingredient that could be used to help supplement your retirement income.
Universal life insurance
Like an entire life policy, universal life insurance coverage is permanent coverage, also it accrues cash value over time. But a key distinguishing feature of universal coverage is it offers flexible premiums that may permit you to adjust how much you pay every year. You will need to, at least, pay the minimum premium quantity of the policy monthly – through either premiums or with the policy's account value – or coverage can finish.
In a universal policy, cash value earns interest at the greater of the current market rate or a minimum interest rate set by the policy. This means the cash value has less growth potential than in a flexible universal life insurance coverage, which is discussed below, where cash value is invested in the market, but possibly greater security because of the policy's minimum interest rate.
Unlike a whole life policy, that has fixed premiums over the life of the insurance policy, universal life insurance has flexible premiums, which means policyholders to be aware of the financial changes. When there is enough cash value, policyholders might be able to use that value to help pay their payments. On the other hand, policyholders may also need to pay more than their standard premium to boost the cash value of their accounts.
Who it may be a great fit for
Flexibility is the key feature of universal life policies. They are generally less expensive than whole life policies. This might make them a great choice if you want permanent coverage with flexible premiums and death benefits and do not mind needing to keep tabs on the insurance policy.
Indexed universal life insurance
With indexed universal life insurance coverage, the money component of the insurance policy is tied to the performance of the predetermined stock index, normally the S&P 500 or the Dow Jones Industrial Average. If the index makes gains, your policy could increase in value together with it.
In addition, your policy contract will clearly identify how your investment may need stock exchange gains. An indexed policy may guarantee against losses but cap any gains beyond a particular level. Or perhaps your policy's account value may only participate in a certain percentage the performance from the index it's associated with. For instance, if your policy has an 80% participation rate, a 5% annual rise in the index would result in merely a 4% rise in your policy's account value.
These are factors that you would wish to discuss with your financial professional if you were considering an indexed universal policy.
Who it may be a great fit for
Indexed universal life insurance coverage is a complex product and could appeal to a policyholder who desires a hybrid between your flexibility of a universal life insurance policy plus some of the earning potential of variable universal life insurance coverage.
Variable universal life insurance
In a flexible universal life insurance coverage, the policyholder chooses investment accounts in which their premiums are allocated. As with any kind of investing, you can see significant earnings or losses.
While long-term investment gains might outpace the guaranteed returns of a whole or universal life policy, you will find risks. In years once the marketplace is down, your cash value will be diminished and may result in you having to pay higher premiums to enhance your money value.
In addition, variable universal life insurance, when compared with other types of life insurance, typically has more fees built into your monthly premium to pay for management, trading costs, and much more. This is one reason many families may want to consider other types of life insurance coverage with less risk minimizing fees.
If you select this type of policy, remember that it takes constant attention because the market changes quickly. For instance, when the accounts in which the premiums are invested drop significantly, the loss of account value can often mean higher policy costs to pay for the death benefit. If you're not able to spend the money for higher premiums or don't have sufficient cash value to pay for the insurance policy costs to keep the policy's death benefit, the policy would no more fulfill its core reason for providing a death benefit to the policyholder's beneficiary.
Who it may be a great fit for
Variable universal life insurance is a great option for policyholders who want coverage for his or her whole lives, are comfortable with risk, and seek a potentially greater return than very existence policies and don't mind the volatility of returns.
Guaranteed issue life insurance
Guaranteed issue life insurance is what it may sound like. All applicants are guaranteed approval on coverage, regardless of age or health. Prior to signing up for a guaranteed issue policy, be aware that this type of no-exam life insurance has a few caveats.
For starters, you're often restricted to a death advantage of $50,000 or less, which for those who have financially dependents, probably isn't enough money to cover their long-term needs. This type of coverage is generally considered your final expense policy, and therefore it's made to help your family pay for your funeral and cover any other expenses associated with your death.
A guaranteed issue life policy also often includes what's called a “graded death benefit.” This means that your loved ones only receive a full death benefit if a certain number of years have passed between you taking out the policy as well as your death. This is to prevent people from signing up for life insurance when they know their life expectancy is brief. The graded death benefit typically restricts the payout up to 3 years once you buy a policy. This restriction is on all deaths because of natural causes. If you unexpectedly pass away during this time period, your beneficiaries actually may not receive a full death benefit.
Guaranteed issue life insurance coverage is a kind of permanent life insurance coverage. As long as you pay your premiums, coverage lasts for your life. Permanent life insurance coverage is generally more costly than term life to begin with, and you will wind up paying much more for any guaranteed issue life insurance policy than you'd for a medically underwritten or simplified issue policy.
Who it may be a good fit for
This type of policy will often are more expensive than a simplified issue or medically underwritten life insurance coverage and offers $50,000 or less in coverage. It's a good option if health concerns stop you from qualifying for medically underwritten coverage. Yet, you would like enough of a death help to cover funeral costs and other expenses whenever you perish.
Life insurance comes in so many forms
If you have a partner, child, or member of the family who depends on your earnings for his or her financial health, then you probably need life insurance coverage. The many kinds of insurance coverage that are available to cater to different budgets, financial needs, and even health statuses so that most people can discover the coverage that fits their demands and situation.
A term life policy is often a sensible choice that appeals to people who want affordable coverage to last for a particular period of time, such as until themselves aren't financially dependent upon them. If you would like coverage throughout your life along with the ability to build additional cash value in your policy, a lasting policy can provide that.
Choosing the best coverage for you does not need to be complicated. Consider what price suits your budget as well as what role you would like life insurance to play inside your operating plan. And, most significantly, don't lose sight of the truth that you're doing all of this research and buying an insurance policy to help financially protect the most important people in your life.