Types of Life Insurance

  • What type of life insurance is best for you? That depends on a variety of factors, including how long you want the policy to last, how much you want your life insurance rates to be, and whether you want to be able to withdraw money from the policy later.

    Term life insurance is suitable for most people. Permanent life insurance policies (such as whole life and universal life) usually contain a “cash value” account, which builds value over time. Eventually you may have enough cash value to take a loan against it to use for large expenses, such as college. Because permanent policies can be complex and expensive, it’s best to have a financial advisor guide you through the options and costs.

    Term life insurance

    Pros: It’s easy to understand and is the cheapest way to buy life insurance.

    Cons: You could outlive your policy. If you still need coverage, you’d need to buy another policy and will pay more based on your age and, possibly, health.

    You may hear some other words that sound like additional types of life insurance, but they’re really about how the policy is “underwritten,” meaning how the life insurance companies will determine how much of a “risk” you are.

    Fully underwritten life insurance: A life insurance medical exam is often required. The application will also generally include many questions about your health, your family’s health history, your lifestyle (such as hobbies like skydiving), and your plans for travel outside the United States. This “full underwriting” allows the insurance company to most accurately price the policy based on your life expectancy. If you are healthy — or even if you have a couple health issues — this will generally be the cheapest way to buy life insurance.

    Simplified issue life insurance: No life insurance medical exam is required, but you will be asked a few health questions and you could be turned down based on your answers.

    Guaranteed issue life insurance: There’s no medical exam and no questions asked. You can’t be turned down. This is the most expensive way to buy life insurance, and you might find only low coverage amounts available, such as $50,000 or $100,000. In addition, if you die within the first few years of having the policy, your beneficiaries may receive only a partial death benefit or a check for the premiums you paid. People often buy these policies when they’ve been turned down elsewhere but they want to cover final expenses, such as funeral costs way to buy life insurance Click here.

    You only have to make two decisions if you buy term life insurance: what amount you want, and how long you want the coverage to last. “Small” term life policies are available with under $50,000 in coverage, but policy amounts can go into the millions. Term life is typically sold in lengths of five, 10, 15, 20, 25 and 30 years. “Level premium” term life means you’re locking in a price for the length of the policy. Typically you will pay a monthly or annual premium to keep the insurance in force. “Annual renewable” term life is a one-year policy that renews every year for a higher price.

    Source: https://www.nerdwallet.com/blog/insurance/types-of-life-insurance/