There are many different types of life insurance policies to choose from these days. The most basic life insurance types are term life insurance and permanent life insurance. Being familiar with these will help you decide which life insurance type is better for you.
When choosing from the different types of life insurance available, you should also consider the insurance company you will apply with. We will shop the market to get the company that is the best fit for your age and health condition.
At Life Wealth Win, we’ll help you decide what type of life insurance is better for you. We will discuss the pros and cons of each kind of life insurance with you. That way you’ll be able to pick the one that is best suited for your family and loved ones.
UNDERSTANDING DIFFERENT TYPES OF LIFE INSURANCE POLICIES: TERMS AND DEFINITIONS
Here are some common life insurance terms and definitions to help you better understand the different types of life insurance policies:
Beneficiary: The person named in the policy to receive the death benefits at the death of the insured. Anyone can be designated as a beneficiary. Upon the death of the insured, the beneficiary will receive the proceeds of the life insurance taxfree.
Death benefit: The amount of payout from the insurance company to be given to the beneficiary when the insured dies. It can remain level or increase in cash value. The death benefit can be received in a lump sum, annual payments, or monthly payments.
Insured: The person who is covered by an insurance policy. Most of the time the insured is the owner of the life insurance policy.
Insurer: A company that provides life insurance coverage through the issuance of insurance policies. They are also called the insurance company, carrier, and provider.
Owner: The person who enters into a contract with the insurance company for coverage. It can be the insured person, the relative of the insured, a partnership or a corporation.
Policy: legal document between the insured and the insurance company stating the terms of insurance contract that is issued to policy-owner by the company.
Premium: The amount of payment to be made by the policy owner to the insurance company for the benefits provided on the insurance policy. The premium may be paid one time or a series of regular payments such as monthly, quarterly, semi-annually or annually.
Underwriter: The person or a team who evaluates the application for insurance and determines the classification of applicants and their amount of premium.
Underwriting: The process by which a life insurance company evaluates applicants for insurance based on a set of guidelines. Underwriting determines whether an applicant will be accepted or declined and assigns rating class for the policy.
DIFFERENT TYPES OF LIFE INSURANCE POLICIES
There are different types of life insurance policies you can choose from.
Term life insurance: This policy offers pure death benefit protection and the death benefits go to your beneficiaries when you pass away.
The death benefit is paid in a lump sum or monthly payment. Term life insurance is typically sold in lengths of 5, 10, 15, 20, 25 or 30 years. Once the term ends the life insurance must be renewed every year (at increased pricing). Most term life insurance allows the policy owner to renew until age 95.
Pros: Term life insurance is easy to understand. You only pay for the death benefit, when the term of the policy expires you stop paying the premium.
It is the most affordable way to buy life insurance especially for those applicants who are younger and in good health when they apply for coverage.
Cons: You could outlive your policy. When the policy expires, you will need to buy another policy which is costly because of your age and possible ill health.
Permanent Life Insurance: This life insurance offers both death benefit protection and cash value component. The policy does not have a time limit compared with term insurance. It is intended to last for the remainder of the insureds life.
There are four types of Permanent life insurance.
- Whole life
- Guaranteed Universal life
- Indexed Universal
- Variable Universal
Whole Life Insurance: It doesn’t expire; the premium amount is constant and will remain the same throughout the entire term of the policy. This means that when a person buys a whole life policy at a young age, they will still pay the same amount of premium when they get older – regardless of their age or health condition.
Graded whole life policies are sometimes the option for people with pre-existing condition.
Whole life insurance has a death benefit and a cash value component. The cash value is allowed to grow on a tax-deferred basis.
The gains on this policy are tax-deferred unless they are withdrawn making the fund compound exponentially over time. Some policies will even provide dividends to their policyholders.
Pros: Insurance policy premiums are guaranteed for life. As long as the premiums are paid, the beneficiaries will receive the death benefit when the insured dies. It builds cash value, and the growth is guaranteed. When you cancel the policy the cash value will be returned to you.
Cons: Whole life insurance is more complex than term insurance. It generally has a higher premium than term. The growth of whole life cash value may be less than the growth of other investments.
Guaranteed Universal Life Insurance is another form of permanent coverage. This type of policy provides a death benefit and cash value component where the funds can grow tax-deferred.
The policyholder can change the premium and death benefit amount without getting a new policy.
Pros: It’s cheaper than the other form of universal life insurance. You can use the cash value to pay the premium.
Cons: The cash value is sensitive to current market interest rates. If the interest rate decreases to the minimum rate, your premium increases to offset the reduced cash value.
Indexed Universal Life Insurance is a type of permanent life insurance that provides coverage for your entire life. The policy’s cash value is tied to a stock market index, such as the S&P 500. Your gains are determined by the stock market formula, which is outlined in the policy.
It has a higher potential for growth through indexing of interest credits. It has flexible premiums and death benefit. You can decrease your premium or skip a payment, as long as your cash value covers the cost of insurance.
Pros: When the linked index performs well, the cash value builds at a faster rate increasing your cash value. The cash value grows tax-deferred and may be used to pay insurance premiums.
Cons: If the linked index doesn’t do well, the cash value will accumulate at a slower rate. Some policies offer a small guaranteed interest rate in case the market goes down.
Variable Universal Life Insurance is a type of permanent insurance policy which offers a death benefit and a cash component. The cash value can be invested in different accounts like stocks, bonds, and mutual funds.
The policy is in force as long as you pay the premium payments. These policies are regulated under the federal securities laws.
Only licensed security agents can sell variable universal life policies.
Pros: This life insurance policy will not expire as long as you pay the premiums. The cash value has the opportunity to grow higher than the whole life policy because the policyholder has the option to invest in securities.
Cons: Variable life does not offer guarantees. The funds are exposed to the ups and downs of the equities market. It has a higher cost per year compared with a universal life policy.
Simplified Issue Life Insurance is a no medical exam policy. If you have poor health, you have a chance to get life insurance eligibility with the simplified issue life insurance.
You can get life insurance without the health exam. You just have to fill out a health questionnaire to determine eligibility.
People who need immediate life insurance coverage like those who have a loan or divorce requirement can benefit from simplified issue life insurance. Also, those who are afraid of needles or doctors’ office can get life insurance without the medical exam.
Pros: You are not required to take a medical exam.
Cons: The policies are slightly more expensive than term policies.
Guaranteed issue life insurance is the easiest to get approved for from the different types of policies. When you cannot qualify for life insurance due to health issues, this policy may be your option.
It requires no medical exam or health questions. You are virtually guaranteed as long as you’re not terminally ill or have HIV or AIDS.
Pros: No medical exam. You are guaranteed coverage until the age of 100.
Cons: These policies are more expensive than term life insurance. They have a two-year waiting period to receive the payout, which means no benefits are paid if the insured dies before the two-year waiting period.
Final Expense Insurance is the type of policy that covers the cost of anything associated with a death such as medical cost, burial, funeral services or cremation.
Final expense policy is typically issued to older individuals who don’t have life insurance coverage and don’t have enough savings to pay for their own funeral.
Pros: This policy is useful if you don’t have another way to pay for your funeral and don’t want to burden your family with the costs.
Cons: Higher life insurance premiums for low coverage amount. Coverage is usually for a small amount from $5,000 to $25,000 to cover final expenses.
DIFFERENT TYPES OF LIFE INSURANCE POLICIES: WHICH LIFE INSURANCE IS BETTER?
There are many different types of life insurance policies available in the market today. Knowing the pros of cons of each type will make you an informed consumer.
Understanding the options available will help you recognize which type of life insurance policies is better for you and your family.
With all of the different types of life insurance carriers to choose from, you can be sure that you have an ally on your side to help you decide which life insurance is a better choice.
At Life Wealth Win, we specialize in healthy to high-risk life insurance cases. We can help you find the life insurance that suits your needs.
We work with clients across the nation to get the best life insurance rates possible. Click on the FREE QUOTE button to start the process.