8 Different Types of Life Insurance Policy

If you’re looking for life insurance, you’ll soon realize that you have a lot of choices. Choice is fantastic, but it does mean that you must comprehend your possibilities in order to choose the kind of life insurance that best suits your requirements.

Different Types of Life Insurance Policy

Term life insurance and permanent life insurance are the two basic types of life insurance. Then, there are a number of variations on permanent life insurance to take into account.

Here is a summary of the many types of life insurance policy, along with the key information for each.

1. Term life insurance
2. Whole life insurance
3. Universal life insurance
4. Burial insurance/funeral insurance
5. Survivorship life insurance/joint life insurance
6. Mortgage life insurance
7. Credit life insurance
8. Supplemental Insurance

Compare Different Types of Life Insurance Policy

The different types of life insurance policies are often distinguished by how long the policy can last, whether it builds cash value, and whether the premiums or death benefit can be variable.

Term Life Insurance

The basics:

• Policy length: Common-level term periods include 5, 10, 15, 20 or 30 years
• Cash value: No
• Premiums: Level, annual renewable or decreasing
• Death benefit: Fixed

How it works

The level term period for term life insurance has a set end date after which rates do not change. You can renew the insurance after this time frame, but the annual prices will increase. There are typically options for 5, 10, 15, 25, or 30 years of coverage. Because you are only purchasing insurance coverage and not paying for life insurance with a cash value, it is the most affordable option to purchase life insurance.

Who is it for?

Term life insurance is the best option for people who require life insurance protection to cover a certain debt or circumstance. For instance, some people purchase it to cover their working years as a backup source of income for their loved ones in the event that they pass away. Some people purchase term life insurance to cover the duration of a mortgage or other significant debt.

Downside

The renewal rates may be too expensive if you continue to need coverage after the level term period has ended. And depending on your age and any existing health issues, purchasing a new life insurance policy might be very expensive.

Whole Life Insurance

The basics:

• Policy length: Permanent
• Cash value: Yes
• Premiums: Level
• Death benefit: Fixed

How it Works

Whole life insurance can offer lifelong protection. The policy’s cash value is accrued over time by using a portion of your premium payment and interest. There are built-in assurances in a policy that the premium won’t go up, the death benefit won’t change, and the cash value will earn a set return.

Who is it for?

Whole life insurance is best for those who desire lifelong protection and are prepared to pay a premium for the policy’s guarantees.

Downside

Whole life insurance is one of the more expensive types of life insurance policy because to the guaranteed benefits.

Universal Life Insurance

The basics:

• Policy length: Permanent
• Cash value: Yes
• Premiums: Might be flexible
• Death benefit: Might be flexible

How it works

Because there are several different types and UL has a wide range of functions, it might be challenging to comprehend how it operates. Because universal life insurance typically doesn’t provide the same guarantees as whole life insurance, it may be less expensive.

Within specific parameters, you can adjust the death benefit amount and premium payment amounts for several types of universal life. There is frequently a financial value element to UL policies.

Who is it for?

Universal life insurance is a suitable option if you want lifetime protection. For those who want to link their cash value gains to market performance, indexed and variable universal life insurance are suitable options.

Downside

Not all UL insurance assure you’ll profit if cash value is your primary concern. Additionally, you must monitor the status of your policy if you want to pay flexible premiums so that the fees and charges of the policy don’t deplete your cash value and cause it to expire. Recognize what is and is not covered by a UL coverage.

Burial and Funeral Insurance

The basics:

• Policy length: Permanent
• Cash value: Yes, typically
• Premiums: Level
• Death benefit: Fixed

How it works

This type of insurance is sometimes referred to as burial, funeral, or final expense insurance. Whatever the name, it’s typically a modest whole-life insurance policy designed to cover solely the cost of a funeral and other final expenses.Burial insurance is frequently promoted as a non-discriminatory coverage that doesn’t call for a physical.

Who is it for?

These types of plans are typically for those who are in bad health, have no other options for life insurance, and need insurance to cover funeral costs.

Downside

Burial insurance policies are costly compared to the amount of coverage they provide.

Burial insurance policies also include a safety net for the life insurance provider: If you pass away within two or three years of purchasing the policy, your beneficiaries won’t receive the full death payment. For these “graded death benefits,” check the policy’s timeframe. Only the premiums you paid in, plus a small amount of interest, might be given to your beneficiaries.

Survivorship Life Insurance

The basics:

• Policy length: Permanent, typically
• Cash value: Yes, typically
• Premiums: Varies
• Death benefit: Paid out after the second person dies

How it works

These joint life insurance policies, such as those for a husband and wife, protect two persons under one policy. Once both have passed away, the beneficiaries will receive their reward. The industry is eschewing the term “second-to-die life insurance,” but you may still hear it. This is understandable.

Particularly if one of the parties has health difficulties, purchasing two individual life insurance policies may be more expensive than purchasing survivorship life insurance.

Who is it for?

Survivorship plans can be useful in estate planning when a beneficiary won’t require the proceeds from a life insurance policy until both the covered parties have passed away. A trust, for instance, could be funded through survivorship life insurance. It is also appropriate for wealthy couples who desire to pay estate taxes for their heirs’ benefit. Or a couple can use it to make a donation to a good cause.

Downside

This is not the appropriate form of coverage if two couples are insured and one would suffer financially if the other passed away. No life insurance payouts are given to the surviving spouse. Only after both have passed away will the payment be made.

Mortgage Life Insurance

The basics:

• Policy length: Duration of your mortgage
• Cash value: No
• Premiums: May fluctuate
• Death benefit: Declining death benefit as you pay down mortgage

How it Works

Mortgage life insurance is only meant to pay off the remaining balance of a mortgage. There are two key ways in which this policy type differs from the life insurance categories mentioned above:

1. The mortgage lender receives the death benefit, not a beneficiary you choose.
2. If you insured only a portion of the mortgage, the payout is only the remaining balance.

Who it’s for

People whose main concern is that their family would be burdened by the mortgage if they pass away are the target audience for mortgage life insurance. A person who doesn’t want to have a medical checkup in order to purchase life insurance may find it appealing.

Downside

The payoff for this type of policy goes to your mortgage lender, so it won’t give your family any financial flexibility.

Term life insurance is preferable if you’re seeking for life insurance to pay off a mortgage or other debts. In addition to giving your family more than simply mortgage money, you can decide on the term length and payment amount. A payout might be used by your family for anything. They might choose to put the money to other uses.

Credit Life Insurance

The basics:

• Policy length: Permanent, typically
• Cash value: No
• Premiums: Level
• Death benefit: Pays off remaining debt to the lender

How it Works

It functions similarly to mortgage life insurance in that it pays off a specific loan. You can be presented with a credit life insurance offer when you take out a loan. Usually, you can roll the payments into your loan payments. The lender receives the life insurance benefit, which represents the outstanding debt, rather than your loved ones.

Who is it for

Credit life insurance may seem convenient and enticing if you’re worried about how your family would pay a certain debt if you passed away. Additionally, the fact that no medical examination is necessary to qualify can be appealing.

Downside

Credit life insurance is quite limited and prevents future financial flexibility. Term life insurance is generally a better option for you because it may be used to pay for a variety of concerns, including debt, lost income, and burial costs. Your family will have more financial options if you die away thanks to a more comprehensive coverage, such term life.

Supplemental Life Insurance

The basics:

• Policy length: Connected to your employment
• Cash value: No
• Premiums: Low or no cost
• Death benefit: Fixed

How it Works

The life insurance you might have via your place of employment is supplemental life insurance, sometimes referred to as group life insurance. Rates are determined based on the collective, not the individual.

Who is it for?

Group life insurance is an excellent value because it is sometimes free or cheap. It works well as supplemental protection for your personal life insurance policy.

Downside

Life insurance is typically also lost when you lose your work. It is therefore better to get independent life insurance that is not connected to a job. Additionally, you can purchase larger insurance policies on your own.

Different types of life insurance by underwriting