Life insurance can be an effective part of an estate planning strategy for many people. This type of insurance will pay benefits to beneficiaries in the case of you passing away. There are two types of life insurance: term life insurance and permanent life insurance. Within these two broad categories there are numerous types of insurance policies.
Term life insurance vs. permanent life insurance
No matter the details every life insurance policy is either categorized as term life insurance or permanent life insurance. Term life insurance policies are in effect only for a specified period of time. This means if you do not pass away before the term expires there is no insurance payout for beneficiaries.
On the other hand, permanent life insurance policies will be in effect for life. Also, permanent life insurance will usually have a cash value component. This is an investment portion of your policy which earns interest. You will be able to withdraw or borrow against the cash value in case of an emergency.
Whole life insurance
A type of permanent life insurance, whole life insurance will last for life as long as you stay up-to-date with premium payments. You will also be guaranteed a rate of return on the cash value of the policy. Also, the death benefit amount never changes.
Variable life insurance
This type of life insurance policy is a type of permanent life insurance. Variable life insurance has a cash value linked to investment accounts holding securities such as bonds and mutual funds. The death benefit is a guaranteed amount regardless of how the investments perform. Also, variable life insurance usually has fixed premiums.
Level term life insurance
Both the death benefit and premiums for a level term life insurance policy remain at the same level until the end of the specified term of the policy. Many younger parents who are the main financial provider for their children and family find this type of policy works best for protecting their loved ones.
Renewable term life insurance
This type of term life insurance policy guarantees you will be able to renew your coverage once your term has lapsed. Renewable term life insurance allows you to do so without the need to go through the application process again. Also, there will be no need to determine requalification eligibility. Renewable term life insurance is also referred to as guaranteed renewable term insurance.
Universal life insurance
When you have a universal life insurance policy you can count on the premiums and the death benefits remaining the same. However, usually there is minimal cash value for this type of policy. Also, you should be aware with universal life insurance the insurer will demand you make payments on-time.
Many more types of policies
The previously listed are just a few types of term and permanent life insurance policies available. Another type of term life insurance policy to look into might be a simplified issue life insurance policy. An additional permanent life insurance policy type to consider is indexed universal life insurance. Simplified issue life insurance and group life insurance can be either term or permanent policies.
We can help you determine how much life insurance you need and the type of policy that can work for you.