Life insurance is one of the few things you purchase with the hope that you will never need it. Its importance cannot be overstated, however, as it creates genuine peace of mind that your family will remain protected in the event of your untimely death.
To secure the greatest comfort, you must purchase the life insurance policy that is best suited to your budget and family’s unique needs. Five major types of life insurance are available. Let us briefly overview each so you can get a better sense of which policy would serve you and your family best.
Term Life Insurance
Unlike the other policies described in this article, term life insurance is not permanent. The policy typically remains in effect for 10, 15, 20 or 30 years.
A term life insurance policy may be renewed on a year-by-year basis once its initial term has ended, but it cannot be renewed for the duration of its original term. The policy’s premium is typically set and locked at its onset; its rate will likely increase if it is renewed annually. Alternatively, a term life policy may be converted into a whole life policy upon the completion of its original term.
Whole Life Insurance
True to its name, whole life insurance covers the policyholder for the duration of their lifetime. So long as they continue paying their premium, their beneficiaries will receive payment at the time of their death.
Whole life insurance costs more than term life insurance in part because a percentage of its premium goes toward a fixed-rate savings account. If the value of those savings equals that of the death benefit, the policy will terminate and pay out the equivalent of the death benefit. The policyholder may also withdraw a portion of their whole life insurance policy’s cash value as a loan. Doing so requires no credit check. The policyholder may choose to repay the loan with interest, or alternatively allow the insurance provider to deduct the interest from their beneficiaries’ eventual payout.
Universal Life Insurance
Like whole life insurance, universal life insurance provides life-long coverage so long as the insured pays their premium. Universal life insurance is also known as adjustable life insurance because it affords the policyholder greater control than a whole life insurance policy. They can alter the amount of the death benefit, as well as the premium itself.
A universal life insurance policy also includes a savings account. Unlike whole life insurance, a universal life insurance policy’s interest rate is not fixed – it is instead determined by market conditions (although a minimum rate does remain in effect). Furthermore, a universal life insurance policy’s accumulated cash value may be used to pay its premiums.
Variable Life Insurance
Variable life insurance offers a wider range of options for investment. As such it has the potential to yield a larger death benefit than other types of policies – as well as the risk of ultimately paying out less.
Variable life insurance includes a fixed death benefit: an amount of money guaranteed to go to beneficiaries so long as the policyholder pays their premiums. It also includes a variable cash value, which depends wholly on the performance of the policyholder’s chosen investments. Variable life insurance policies typically aren’t advisable for those who aren’t familiar with or do not wish to monitor equity markets.
Final Expense Life Insurance
While it is technically a whole life insurance policy, final expense life insurance is typically only purchased by people who are at least 50 years old. The policy’s death benefit is not meant to provide for beneficiaries, but rather to pay for the policyholder’s hospital bills, funeral expenses, and any other debts that could have been created as the result of their passing. Naturally, final expense insurance has the least strict health and age requirements.
Choosing the best life insurance policy demands taking several variables into account. If you have a limited budget, then term life insurance may suit your needs best. If you have a large number of dependents, whole life insurance may provide the greatest peace of mind. Alternatively, if you are already well-versed on financial planning, your beneficiaries may receive the greatest value from a variable life insurance policy.
If you would like assistance weighing the relative pros and cons of the several types of life insurance policies, then we welcome you to contact McKinneyOlson Insurance today. We have helped people take care of their families throughout the greater Sioux Falls, SD area since our foundation in 1880, and our staff’s centuries of combined professional experience ensures that our clients receive the best life insurance policies under any circumstances.