There are different types of life insurance policies available on the market, and it can be confusing trying to figure out which one is right for you. In this blog post, we will break down the four most common types of life insurance: term life, whole life, universal life, and final expense. We will discuss the benefits and drawbacks of each policy so that you can make an informed decision about what type of life insurance is best for you.
Term Life Insurance
Term life insurance is the type of life insurance most people are familiar with. It pays a cash benefit to your loved ones (also known as your beneficiaries) if you were to pass away during the term. The term is how long the policy lasts. Typical terms are 10, 20, or even 30 years.
The benefits of term life insurance are:
- Affordability. Term life insurance only offers a death benefit, which is the cash paid to your beneficiaries if you pass away during the term. It does not include a savings benefit like permanent life insurance. This makes it the most economical type of life insurance policy, at least initially. Many people are pleasantly surprised to learn just how affordable term life insurance can be. As an example, a healthy 30-year-old can get a $250,000 20-year level term policy for about $13 a month.
- Flexibility. You get to choose how long you want coverage to last based on your needs. Many people pick a milestone like when their kids graduate from college or when they retire for when to stop coverage. Your term can last as little as a year to as long as 30 years or more.
- Simplicity. Getting term life insurance typically involves just two decisions: how much coverage you want and how long you want it to last. A licensed insurance agent can help you choose a coverage amount and term. To get a general idea of how much term life insurance you need, check out our Life Insurance Needs Calculator.
- May not require a medical exam: Many, but not all, types of term life insurance policies require a medical exam. Today, some options don’t require you to undergo a medical exam. They typically give you immediate coverage after you fill out an online application and you qualify. However, the coverage amount may be limited as well as more expensive on a dollar-for-dollar basis than traditional life insurance that requires a medical exam.
Permanent Life Insurance
In addition to a death benefit, permanent life insurance has several features that term life insurance does not.
The benefits of permanent life insurance include:
- Lifelong coverage. As its name implies, permanent life insurance covers you for life, as long as you pay your premiums. Many people gain peace of mind knowing they will always have coverage in place.
- Living benefits. A benefit of permanent life insurance is that it can build cash value over time, which accumulates on a tax-deferred basis just like assets in most retirement and tuition savings plans. The money can be used in the future for any purpose, including important milestones such as a down payment on a home, college tuition, or retirement. (Just know that withdrawing cash value from the policy will reduce the death benefit if you don’t pay it back.)
- Many options. There are different kinds of permanent life insurance. Some offer a guaranteed rate of return while others let you choose a mix of investments for a variable rate of return. Meanwhile, some require you to pay fixed premiums while others let you vary the amount based on your financial circumstances. Others even let you skip premium payments and increase or decrease your coverage level over time.
Sub Category Final Expense & Burial Insurance
Final expense insurance, also called burial insurance, is a type of permanent life insurance designed to cover end-of-life expenses. These can include funeral costs, medical bills, and outstanding debts.
The benefits of final expense life insurance are:
Simplicity. A final expense policy is typically much easier to qualify for than a traditional life insurance policy. This is because the coverage amount is typically smaller and the underwriting process is often streamlined or even waived altogether.
Coverage for people with health problems. Final expense policies are available to people with health problems that would make them ineligible for traditional life insurance.
Guaranteed approval. Some final expense policies come with a guarantee of approval, meaning you will be accepted for coverage regardless of your health.
No medical exam. Many final expense policies do not require a medical exam, making them a good option for people who are uncomfortable with or unable to undergo one.
There are two main types of final expense life insurance:
Whole life and Term life
Whole life insurance is the more traditional type of policy. It builds cash value over time, which you can use to pay premiums or access through loans or withdrawals. Whole life also typically comes with a death benefit that is guaranteed to never go down, no matter how long you live.
Term life insurance is designed to provide coverage for a specific period, such as 20 or 30 years. It does not build cash value and the death benefit is only paid if you die during the term. Term life is typically less expensive than whole life, making it a good option for people on a budget.
No matter which type of policy you choose, final expense insurance can give you and your loved one peace of mind knowing that your end-of-life expenses are covered.