Best Life Insurance Policy
While there are many different variants of life insurance policies out there, we will keep our focus on some of the most common and important policy types. The following list describes 10 types of policies that we will be discussing in detail. We will also provide you with some recommendations that might help you choose the policy that best fits your needs.
Before you go on reading the post, please keep in mind that there is no ‘best life insurance policy’ as every individual is unique with different needs and circumstances. Your life insurance coverage should be customized and tailored to meet your expectations.
10 Types of Life Insurance Policies:
- Term Life Insurance
- Permanent Life Insurance
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
- Indexed Universal Life Insurance
- Guaranteed Issue Life Insurance
- Final Expense Life Insurance
- Simplified Issue Life Insurance
- Group Life Insurance
and no exam life insurance vs fully underwritten.
When choosing a life insurance policy, it’s also important to look for a company that works best in your niche. For example, when finding life insurance for smokers, it requires that you apply with companies that are more smokers friendly otherwise you will end up getting high premiums and even a rejection.
Life Insurance Policies:
The two main types of life insurance policies are term life and permanent life insurance. Let’s start describing both of these in detail:
Term Life Insurance:
Term life insurance is the most affordable type of insurance protection that you can provide to your loved ones. Have a look at our sample term life insurance rates by age chart to see how affordable and flexible life insurance can be.
What is Term life insurance policy?
A term life insurance is a policy designed to provide life insurance protection for a specific period of time. The available term lengths are usually 10, 15, 20, 25 and 30 years. It’s basically a policy where you are paying premiums for the death benefit that goes to your beneficiary if you die within the term specified. You can renew the policy once the term ends. However, the premium may not be the same due to the change in age, health and other life factors.
Term insurance is an affordable option providing protection to your family when they need it the most for e.g to cover major final obligations in life if something happens to the main breadwinner of the family.
There are two basic types of term life insurance policies:
- Level Term Policies
- Decreasing Term Policies
Level term insurance guarantees that premium and the death benefit stays the same throughout the duration of the policy.
Decreasing term insurance means that the death benefit will drop over the time of the policy. Monthly premiums will remain the same at first but will eventually decrease with the passage of time. Many policyholders use the benefits from this policy to pay off mortgages.
What is Permanent Life Insurance?
As the name implies, a permanent life insurance policy offers you a lifelong protection as long as you pay the premiums. It also allows an accumulation of cash value at a minimum interest rate.
There are four main types of permanent life insurance policies that are different from each other in their unique respective manner. These include:
- Whole life insurance
- Universal life insurance
- Indexed universal life insurance
- Variable universal life
What is Whole Life Insurance?
Whole life insurance is a type of permanent policy that not only has a death benefit but also a cash value. The premiums that you pay are used to fund the policy’s cash value. Another big advantage of whole life insurance is the ability to borrow cash against the policy. Since this type of insurance accrues cash value you can also include it as a part of your retirement planning.
The premiums, in this case, remain the same throughout the lifespan of the policy. If a relatively young individual purchases a whole life policy, he/she can expect to pay the same amount of premium as they get older, even if medical complications arise later on. However, if a person with a pre-existing medical condition were to buy whole life, they will likely be rated in a high-risk category and pay a lot more for their coverage.
Since this type of life insurance has a cash accumulation feature, it can be four times expensive when compared to a term life policy for the same death benefit amount.
What is Universal Life Insurance?
Universal life insurance helps build cash value and is designed to last your entire life. But how does it differ from whole life policy? Well, here’s a twist: It offers flexibility to policyholders in terms of premium payments. That said, if at some point in your life you may feel a need to lower your premiums, you can do so by adjusting your premiums based on your cash value but keep in mind that these adjustments can only be done after the first year of the policy and only if you have enough cash value that can keep your policy in force for another two months.
Additionally, the cash value of a universal life insurance policy has an interest rate that’s sensitive to current market interest rates. If the interest rate being credited to your policy decreases to the minimum rate, your premium would have to increase to offset the reduced cash value. On the other hand, if the insurance company’s portfolio performs well, exceeding the minimum interest rate then the excess earning will be credited to your cash value account.
The flexibility and the potential to earn more than the minimum interest rate makes universal life attractive to most people. Although it may sound lucrative to you at first, there is a lot of understanding and complexities when buying this policy, so make sure you discuss all your options with a life insurance agent before you make a final decision.
What is Variable Universal Life Insurance?
Variable Universal Life Insurance (VUL) is a type of cash-value life insurance product that offers death benefit as well as an investment feature. The face value fluctuates depending on the performance of your equity products supporting the policy. This is a great option for making a lot of money if the market is in an uptrend. But if something unlikely happens to the market and it faces a downtrend then it might be difficult for you to keep up with the increased premiums.
Variable universal life is a great choice to add to your investment portfolio but this should not be considered as one and only type of life insurance choice for your family.
What is Indexed Universal Life Insurance?
It’s an insurance policy that is tied to a stock market index such as the S&P 500. The premiums are placed in a general account. Now the policyholder has an opportunity to allocate his funds either to a fixed account or to one of the indexed accounts.
Each account has a guaranteed floor that protects you against market losses. This protection is available since you are not investing directly in the market.
What is Guaranteed Issue Life Insurance?
Guaranteed Acceptance is generally a whole life insurance policy with a limited death benefit. There are is no medical exam and any health enquiry whatsoever. It is a simple process, with quotes based solely on your age, location, and gender. You can often get approved for instant coverage in minutes online. This type of life insurance is more appealing to older people when their declining health makes it difficult to get coverage with other insurance types.
Guaranteed issue life insurance is a pricey option, therefore if you are young and have no as such health issues, consider applying for other life insurance policies. Discuss with your life insurance broker about your options and which type of policy is best to choose. For more information, see our article on guaranteed acceptance life insurance.
What is Simplified Issue Life Insurance?
A simplified issue life insurance is ‘simplified’ in a sense that there is not a lot of underwriting involved in the process. There is no medical exam, only a few health-related questions, such as, if you have been diagnosed with any critical illness or if you smoke or are diabetic etc. People with serious health conditions may be required to take a medical exam or they could get a total rejection depending on the patient’s situation.
Simplified issue is also a great choice for those who are in a hurry and want to skip the medical exam process or have any sort of doubt about their health but ist not yet confirmed by the doctor. Sometimes it makes sense to take a no exam life insurance policy than taking a risk to get declined in a fully underwritten policy.
Also, Simplified issue life insurance is quite expensive when compared to the term life insurance policy. The premiums of term life insurance policy are tied to your health and age, that’s why a medical exam is important. If you are young and healthy, you will get lower rates. In the simplified issue, since there is no exam, the policy premiums are quite high.
If you think life insurance is expensive, then fill in the form on the right and get free quotes with no commitment. Nothing’s wrong with getting a free quote right? You would be surprised to know how affordable term life insurance can be.
What is Final Expense Insurance?
A life insurance policy that is specifically designed to cover funeral costs, burial costs and late in life medical expenses. It resembles simplified life insurance in a way that it does not involve any medical exam although there is health questionnaire that you have to fill. If you don’t pass that questionnaire you will be issued a guaranteed acceptance life insurance policy instead. Also, final expense life insurance policy is only issued to people with certain age.
Seniors are most likely to buy this policy as they don’t want to pass the burden of their funeral costs to their families which usually goes up to $8000. The coverage that you get with this policy is not much, around $5000 to $25000 but its good to have something if you have no other way to pay for those expenses.
However, with benefits listed above, it also has some drawbacks like high premiums for a low coverage amount. To find out more visit our page on final expense insurance or you can give us a call at 1-800-521-7873 to speak to one of our licensed agents
What is Group Life Insurance?
Please note that group life insurance is not exactly a policy type but it’s important to understand what is it actually and how does it function.
Group life insurance is mostly provided by an employer. It’s a term life insurance policy usually but sometimes it can be a whole policy too, depending on your company’s choice. Most people who get life insurance through work think that they have enough coverage to protect their family but most of the times, it’s actually not enough.
Don’t take us wrong, if your company is offering you a life insurance coverage at no additional cost, get yourself insured as it has many benefits. But this employer-provided life insurance is not able to meet the needs of your family’s protection. Let’s have a look at few of these reasons why you may be needing additional life insurance to meet financial challenges for your family in the future:
- It offers low coverage which is usually worth five to eight times your annual salary
- Losing coverage when changing the job
- May not be the cheapest option
- Group insurance may not be tailored to your specific needs
For more information, read our detailed article here: Buying life insurance through work
What is No Exam Life Insurance?
A no exam life insurance policy is offered without going through the hassle of a paramedical exam. If you have certain health issues like high blood pressure, high cholesterol then going for a no exam policy seems a wise decision.
What is Fully Underwritten Life Insurance?
Applying for a fully underwritten policy requires a medical exam. This exam typically includes checking your height, weight and taking a sample of your blood and urine. Your lab results then proceed to the life insurance carriers after which they offer you a life insurance policy. Sometimes, a statement from a physician is also required if the carrier thinks more information is needed.
The normal time it takes to receive an offer is 2-4 weeks but sometimes life insurance carriers may even send you an offer as soon as in 48 hours depending on your health. If you have some health issues then the process may be a bit longer taking 4-6 weeks.
The biggest advantage with fully underwritten policy is that you can get substantial savings on both term and permanent life insurance if you are in perfect health.
What Type of Life Insurance Policy is Right For Me?
Every life insurance policy is designed keeping in mind the needs of different people.
Term life insurance policies are most affordable and simple to understand. They provide protection for as long as you need. You are not bound to keep it for a lifetime.
Permanent life policies are for people who look at savings component. It proves to be useful for people who are not great when it comes to saving for retirement. Simplified issue and guaranteed issue life insurance are good options for elder people who might not be able to get policies that require a medical exam. Final expense insurance is also for seniors who don’t want to burden their families with funeral related expenses.
Talking to an experienced and licensed independent broker or agent can help you to a greater extent in deciding which policy is right for you. Get complete information about the policy, its pros and cons and then compare it with your needs. This way you will be able to make an informed decision and right choice for your family.
Thank you for reading our article 10 Types of Life Insurance Policies. Please leave any comments or questions below.