Choosing the right kind from out of the different types of life insurance policies can really be a huge fix. And, it so happens because there are various types out there. It surely means there are various ways each works. Unless you have a clear idea about how they work, you may grab the wrong pack.
The experience can be depressing.
On a minimum level, knowing less than necessary may hold you from getting the best type of life insurance policy you could have.
That’s why we have a trailer-discussion about the different types of life insurance policies for you.
The Generic Types
Generically there are 2 types of life insurance policies:
the term life insurance policy; and,
the whole life insurance policy.
Let’s know about these two generic types of life insurance policies and their sub-types.
Term Life Insurance
Of the different types of life insurance polices, term life comes first because it the most projected as well as popular of all.
Term life insurance is a fixed-time life insurance policy that you buy for your family’s risky period ahead.
You buy it because you worry over your sudden death within the time-bracket.
And you know the dependents you will leave behind will have hard time surviving behind you.
Also, you have worries that their day-to-day life may be adversely affected.
You have apprehension that the education of your beloved children might be cut off.
Your dependents could have the loads of financial loans you might leave for them to repay.
Mortgage would take away the roof over their heads.
The family’s living standard could go so down.
Even, meeting your funeral costs might be difficult for them.
You also know, if you can survive certain years, things will be as rosy for them as you dream of.
So, you wish there were some assurance of protection for you for those years. You know you don’t need the protection for the whole of your life.
There is no genie for you to bring the assurance.
You have the life insurance companies out there.
They are ready with promise of protection for you for those years. If you buy a term life insurance from them, you have the promise of you look for. Of course, this is no Samaritan job. This is business for them. You pay them price and they give you promise for the term.
Term means a fixed span of time in the vocab of the insurance industry.
Term life insurance is a promise of financial protection from the insurance company to supply financial resources for your family members for a period of time.
The promise of the term life insurance, the most popular of all types of life insurance policies, comes true only when or if you die within the period of time — the term. You receive a death benefit.
In the form of …
A gross amount of money that you and the the insurer write the deed for.
Whole Life Insurance
A whole life insurance policy is different from the term life policy.
This type of life insurance promises protection for your folks and you for your lifetime.
You have some income from your life insurance policy.
No matter you die or not, you have a lump some when your reach the maturity age.
You buy it when you want to leave a legacy behind for your folks for a surety.
Types of Term Life Insurance Policy
Annual Renewable Term Policy: As the name suggests, an annual renewable term is one which requires you to renew the policy every year.
You have the promise of an agreed-upon coverage from the insurer’s side. If you pass away any time within the the year, the coverage amount goes to the people you nominate.
This kind of insurance policy is good for you when you do not want to remain committed to the insurance for longer periods.
You will probably leave it whenever you think fit.
However, of all the types of term life insurance policies, this one makes the least sale. So not many carriers have the portfolio in their product categories.
Level Term Life Insurance Policy: Level term life insurance policy is the most popular of all types of term life insurance policies. It provides protection to you for a set period of time. The span of time works in the following ways:
5 year level term insurance policy
10 year level term insurance policy
15 year level term insurance policy
20 year level term insurance policy
25 year level term insurance policy
30 year level term insurance policy
35 level term insurance policy
Because the 20 year and the 30 year level term policies are the most popular choices, most life insurance carriers sell them. But the other level periods are also on the marketplace.
How the Level Term Insurance Works
Level term means your premium cost will remain level or unchanged for the specified years. So if you buy a 20 year level term, your cost for life insurance will not go up for 20 years. However, it is important to remember that you are unlikely to get a level term life insurance after age 65. Therefore, there is little reason to believe that if you buy a 30 year term life insurance policy at age 61, you will be able to pay level premiums up till you are 91.
Cost: The cost of the level premium policy is cheaper than most people mistakenly think of. For example, a 25 years old excellent health female from Illinois has to pay $20.23 a month for the coverage of $250,000. (Source: State Farm)
Decreasing Term Insurance
Of all the types of life insurance polices in the term insurance category, this one stands in contrast with the popular view of life insurance. While most of us believe that life insurance policies provide a large sum of death benefit to the beneficiaries when the policyholder dies, a decreasing term life insurance policy does the exact opposite. With this variety of life insurance, your coverage keep going downward instead of remaining static.
You might wonder what type of life insurance policy this is. Well, this policy is useful for people who worry over their mortgages. They know if they die leaving their mortgage payment due, their family members will be in a trouble. This is the reason some people buy this policy.
Cost: The cost of this policy is little higher than that of the level term policy. For example, the same Illinois young lady’s cost for the same policy stands at $22.45 a month. (Source: Same)
Increasing Term Life Policy
This term policy works antithetically to the decreasing term life policy. When you are on an increasing term life insurance policy, your death benefit will increase over time. So the cost of the policy keeps going upward annually or periodically.
Cost: Though initially lower than that of level term, the cost of this policy goes much higher than that of the level term policy.
Return of Premium Term Life Policy
The return of premium term life insurance policy is a unique type. When it comes to the death benefit, this variety of term life insurance policy works the same way the level term policy does. But while a level term returns you nothing if you survive the policy life, return of premium returns all your premiums to you. A good amount of money comes back to you as savings. You however, get nothing for profit from this policy.
Cost: The cost of this policy may be up to 2 or 3 times higher than that of the level term. For example, State Farm’s monthly premium for the same coverage for the said lady is $40.25.
Types of Whole Life Insurance
Traditional whole life is nothing other than the basic whole life insurance. We have already said what the generic whole life insurance means. You buy this type of whole life insurance for two obvious purposes: to get covered and to get profit. This insurance policy provides you lifelong protection and ensures death benefit to the heirs. You also keep getting cash value as long as you live. However, you should make note that the profit thing is less charming than it may seem. This type of policy makes the biggest sale among its classes.
Traditional whole is also known as ordinary whole life insurance.
Cost: The cost of the traditional whole life is by far higher than that of any of the term life policies. For example, the same Illinois lady’s monthly cost for $100,000 stands at $898.00 with State Farm. Costs for this kind of life whole life insurance remains fixed.
Variable Whole Life
Of the various types of life insurance policies of whole genre that exist out there, the variable whole life insurance policy stands apart in that you have the ownership feel here. This policy has the death benefit option like the traditional whole life policy. It also has the cash value side. But when you are on a traditional whole policy, you cannot know how the investment part works. A variable policy offers you the choice to pick from company provided options in which you want your investment to go to. While this might sound cool to your ears, you need to also know that your decision makes or mars the future of the insurance. On a good note, you are never deprived of a minimum payout that comes off as the death benefit. Some buyers consider it advantageous that they can both choose and change the investment portfolio.
Cost: Does not usually vary from the traditional whole life cost.
Universal Whole Life Insurance
Being of the whole genre, a universal whole life insurance policy carries both death benefit and cash value. It is not as rigid as that of the traditional whole. When you are on this policy, you have the choice to lower or raise your premium as you find suitable. However, there is a minimum level of premium that you have to stick to.
Cost: Does not vary much from the traditional whole life policy.
Variable Universal Whole Life Insurance Policy
Among all the types of whole life policies, variable universal whole life insurance aka VUL appears as the most user-friendly. As a whole life policy this policy essentially bears promises of death benefit as well as cash value. You enjoy the active investor’s feel of variable policy here as you choose the options of investment. You also enjoy the flexibility of premium payment which lets you raise or lower the coverage to your advantage.
What Life Insurance Mentors Say
This discussion on the different types of life insurance policies is of definitive nature and so we would ask you to become more knowledgeable about the various types of life insurance policies that exist there. We would also like to warn you not get carried away by any discussions easily. You need to check and double-check the pros and cons of whichever of these types of life insurance policies appears agreeable to you. Our experiences say the cons need more focus than the pros. Without doubt, cautions are important.