If you stopped people on the street and asked someone to name a type of life insurance, you most likely would get these two types of life insurance: term and whole life. They are commonly known, yet there’s also universal life, final expense, variable life, and mortgage protection insurance.
Let’s explore each one and see what type of life insurance fits your family and financial needs.
Whole and term life insurance
The most commonly known life insurance policies are whole and term life insurance.
- Whole life insurance continues for the duration of a policyholder’s life, provided the monthly or annual premium is paid. Upon a policyholder’s death, the beneficiary will receive their designated benefit amount. Whole life insurance policies also build cash value. Policyholders can withdraw funds in the form of a low interest rate or cash against the accrued cash value. This allows a policyholder to use the money for unexpected issues that may arise in life events, such as lost income due to unemployment. If the loan or withdrawn cash is not repaid, the death benefit will diminish in value.
- Term life insurance, unlike whole life, typically has an expiration date. The insurance policy lasts for a specified term or period. When that term expires, the policy expires. Term life premiums are typically lower than those of whole life insurance, and the policy does not build cash value.
Talking with a licensed life insurance agent or financial planner about the best fit for you and your family can help you decide.
Universal and variable life insurance
Universal and variable life insurance policies offer investment options for the policyholder. They are similar to whole life insurance except they aren’t locked in to one type of cash value plan. Both can be adjusted regarding investment choices while the death benefit amount normally remains the same.
Both variable and universal life insurance allow you to adjust your premiums. Once the premiums are covered for the death benefit and administrative fees, the remainder is put into a cash value account. Failure to maintain sufficient cash value may cause your policy to lapse or terminate and there are investment risks associated with this kind of insurance.
- Variable life insurance is designed as a policy which provides life insurance and pays a specified amount to your beneficiaries. It also builds cash value dependent on the policy’s fees and expenses, and the performance of investment options. These investment options are typically mutual funds. The cash value may rise or fall according to the performance of the mutual funds.
- Universal life insurance is a permanent insurance policy with an investment savings component as well. You can change the premiums and the death benefit. It requires you to monitor your policy due to maintaining sufficient funds for the death benefit and cash value.
Mortgage protection life insurance
Mortgage protection insurance is a form of insurance designed to help protect your family from mortgage payments if you are no longer alive to provide income.
Some life insurance companies will add other forms of benefits:
- Some mortgage protection life insurance policies help the policyholder with the cost of inflation by increasing the death benefit each year until a certain age.
- A percentage increase of the mortgage protection life insurance is given in case of accidental death by car or commercially scheduled airline.
Final expense insurance
Final expense insurance is similar to other types of life insurance. The death benefit is a cash benefit, distributed to the beneficiary. It’s usually a lesser amount because the death benefit amount is bought specifically to help cover the final expenses of a funeral.
Find your best fit
You have many options for securing a life insurance policy. Factors for consideration may be:
- What are the financial needs of your family if you were no longer able to take care of them?
- Are there any health-risk factors in your family background that may show up later for you or your family?
- What is your earning power now and potentially in the future for the appropriate coverage?
Author: By the Globe Life Staff
Globe Life articles are researched, written, and edited by multiple members of the Globe Life staff including, Marketing Specialists, Content Writers, Product Experts, as well as Legal & Compliance Professionals.