Life insurance is more than just a financial safety net, it also serves as a plan for protecting your loved ones if you should pass and even providing for them while you are still with them. This versatility is made possible by the various types of life insurance policies that are available.
Two of the most basic categorizations for life insurance have to do with how long you would like this protection to last. Choosing between a term policy and a permanent policy will have a large impact on how much you pay in premiums as well as how much protection you will receive for your family and loved ones. Let’s dive into what distinguishes these two categories.
Term life is the most common and also the simplest policy you can get. It provides coverage for the duration of a specified period of time (usually 5, 10, 15, or even 30 years) known as the “term.”
Depending on when you purchase your policy, a term life policy may have lower premiums than permanent life insurance, especially if you buy coverage at a younger age. Term policies also only provide death benefits as opposed to permanent policies that have benefits that can be accessed while the policyholder is still alive. Under a term policy, the death benefits will only be paid if the policyholder passes within the specified term.
If your term is expiring and you would like to extend your coverage, you can renew your policy. However, this will require a reassessment of your policy and will likely become more expensive as you age.
Lastly, if you would like to convert your term policy to a permanent life policy, you can do so easily with the help of your insurance agent.
Permanent life insurance policies are just that, permanent. They last for the entirety of the policyholder’s life provided the premium payments are continuously made. These types of policies are more complicated and generally more expensive, but the benefits are greater and last longer.
One major benefit of permanent policies is something called “cash value.” This is an amount that is saved from your premium payments to accrue over time. All permanent plans allow policyholders to borrow or take loans from this cash value to fund things such as medical bills, college tuitions, mortgages, or even your policy’s premium payments.
There are two main categories for permanent policies:
A whole life policy is a permanent plan that provides a consistent experience. Like all permanent policies, it will last until the death of the policyholder and accumulates cash value over time. However, whole life allows policyholders to establish a fixed premium rate that will not change as the years go by. Once that rate is set, you can easily budget for it and predict how much you will pay each pay period. This also means that the benefit amount is fixed as well.
On the other hand, universal life insurance allows for a more flexible approach to your policy. Just like whole life plans, universal policies accrue cash value and do not expire. However, based on the cash value that is accrued, you can adjust your premiums or even tap into that value to skip a premium payment altogether. You can also adjust your premium as it relates to your benefit. This means that you can increase the total coverage by also increasing your premiums. You can also decrease both in the same way, giving you flexibility as your life circumstances change.
This breakdown may still be confusing, and you may still be wondering which kind of policy is best. Ultimately, the best policy is the one that meets your needs. If you are interested in a cheaper policy and do not think you will need coverage in the future, then a term policy may be the right fit. However, you may find yourself paying more altogether if you decide to extend your coverage.
On the other hand, if you would like to have coverage that lasts a lifetime and has benefits that you can access while you are still alive, a permanent policy could be the way to go. Also, if you would like consistent payments that are regularly withdrawn, a whole life policy is likely your best bet. At the same time, if you anticipate major life events in the future and want to retain the flexibility to change your premiums and benefits, a universal life policy could be the answer.
Life insurance is a nuanced industry and understanding exactly which policy to buy requires more than a quick Google search. You need to take your goals, income, needs, and potential future life events into account before making a decision. However, one thing is certain—getting a life insurance policy is a crucial investment that you are making toward the protection of your loved ones.
The world of life insurance can be complex and confusing. There are many different nuances that can affect your policy and how it impacts both your personal and your financial goals. From deciding between term vs. perm policies to choosing the riders you want to add, it’s always best to have an expert in your corner to help you make the best decision for your family.
Here at LifeQuote, we have a team of highly experienced life insurance agents that are ready to help you find the policy that matches your needs and goals when it comes to protecting your loved ones. We offer both term and permanent policies as well as plans that don’t require a medical exam. Contact us today for a free quote.