Primary Life Insurance: Understanding The Different Kinds

Life insurance is a crucial financial decision that helps protect your loved ones from life's uncertainties. There are two primary types of life insurance: term life insurance and permanent/whole life insurance. Term life insurance is purchased for a specified period, such as 1, 5, 10, or 30 years, and provides coverage only if the insured person dies during that period. On the other hand, permanent/whole life insurance offers lifelong coverage as long as premium payments are maintained and may include a savings component. Within these two main categories, there are several subtypes, including level term, decreasing term, universal life, variable life, and final expense life insurance. Additionally, there are various add-ons and riders that can be included in a life insurance policy to enhance coverage, such as accidental death benefit or critical illness coverage.

Term life insurance

There are several types of term life insurance:

• Fixed Term: The most popular choice, it is the most basic version and lasts 10, 20, or 30 years. The premiums remain static.
• Increasing Term: This allows you to scale up the value of your death benefit throughout the term. Your premiums will slightly increase over time, but these policies tend to deliver a larger payout.
• Decreasing Term: This reduces the premium payments over time, resulting in a smaller death benefit. This type of insurance makes sense for those who predict they will have fewer financial obligations as they age.
• Annual Renewable: This provides coverage on a yearly basis and must be renewed by the policy end date to continue coverage. The premiums usually increase each time the plan is renewed. This option is best for those in need of short-term coverage.
• Group Term: This type of plan is purchased through your employer and functions as a workplace plan, deeming all employees eligible for coverage.

Whole life insurance

There are a few disadvantages to whole life insurance. The premiums are typically higher than those of term life insurance, and the cash value may grow slower than with other policies. Whole life insurance also offers limited flexibility, as you cannot adjust the premium or the death benefit.

Universal life insurance

One of the main advantages of universal life insurance is its flexibility. Policyholders can adjust their premiums and death benefits to suit their changing needs and circumstances. The death benefit can be increased or decreased, and premiums can be raised or lowered, skipped, or paid in a lump sum. This flexibility can be particularly useful for those with variable incomes.

However, there are also disadvantages to universal life insurance. The returns are not guaranteed, and if the investments underperform, the cash value can decrease, potentially leading to higher premium payments or even policy lapse. Additionally, some withdrawals from the cash value may be subject to taxes.

Overall, universal life insurance can be a good option for those who want permanent life insurance with the flexibility to adjust their policy as their needs change. However, it is important to carefully manage the policy and monitor the cash value to avoid unexpected costs or loss of coverage.

Variable life insurance

A hybrid policy known as variable universal life insurance offers similar features to variable life insurance but with adjustable premiums. This may appeal to those who don't want to commit to paying the same amount in premiums each month.

Final expense life insurance

Final expense insurance is one of the most affordable types of life insurance. It offers a smaller and more affordable death benefit designed to help cover your end-of-life expenses. While other types of life insurance may have age and health requirements, final expense policies can be easier for older or less healthy individuals to qualify for. A final expense policy's cash value operates in the same way as a whole life policy's, building value at a fixed rate over time.

Final expense insurance offers competitive, fixed premiums that do not change over time. The cash benefit from final expense insurance can help cover funeral and burial costs, medical needs or anything else that will help loved ones.

No physical exam is needed for final expense insurance. You simply need to answer a few health questions to apply for coverage, with fixed monthly premiums. Your final expense insurance coverage remains in place as long as your premiums are paid.

Final expense insurance plans build cash value—a sum of money that can be used to borrow against or used as a non-forfeiture benefit. You can also choose whether to pay your premium monthly or annually.

The application process for final expense insurance is quick and easy, and coverage can be issued in days, sometimes even on the same day you apply. Once you've been approved, your coverage starts immediately.

Frequently asked questions