Life insurance provides an effective way of protecting your loved ones against life uncertainties, especially after death. It provides a cushion that can help make your exit journey smoother and improve the quality of life of those you leave behind. There are various types of life insurances, and to help you decide the best for you, it is essential to outline the benefits you feel your family will need most if you are gone and what you can afford at the moment. This article will provide great insights into the various types of life insurance starting with the two basic ones: term and whole life insurance. It will also give you several other types of life insurances, listing their pros and cons to make it easy for you to make an insurance decision. Some of the types of life insurance discussed in-depth include:
- Term insurance
- Whole life insurance
- Universal life insurance
- Variable universal life insurance
- Indexed universal life insurance
- Final expense insurance
- Guaranteed issue life insurance
- Group life insurance
- Simplified issue life insurance
a. Term life
Term life insurance guarantees your loved ones get the benefit known as a death benefit. As the name “Term Life” suggests, it provides you with insurance for a specific period, typically within one to thirty years of taking the policy. In cases where the period elapses, you would need to purchase another policy. The benefits of term insurance are paid to a specific beneficiary in lumps or monthly stipends depending on a written agreement. Compared to other policies, it promises a competitive and affordable monthly premium making it an excellent option for individuals with more financial responsibilities. It is also easy to cancel the policy before maturity without affecting your value. Its downside is the fact that it is time-bound, and as such, one has to keep renewing it.
b. Whole life insurance
Whole life insurance, also called permanent life instance, provides a more permanent type of insurance. It also has a cash value attached to it, making it more useful and profitable for you and your family. A whole life insurance policy can be used to help build your retirement home and provide a saving culture as it has avenues created to help you save. Its cash value aspect also makes it beneficial, for example, in helping you take care of your children or family in case of your absence. Whole life insurance is, however, more expensive than term insurance. Due to its high costs, not many people can afford it, which makes its audience a bit smaller due to the financial demands it comes with.
c. Universal life insurance
Universal life insurance has similar characteristics to whole life insurance in that it has a death benefit and cash value package. The difference in universal life insurance is that the premium you pay accrues an interest which you can use to pay the monthly premiums without affecting the policy. This feature makes it more flexible, as you can use the interest acquired from investments to help reduce the overall insurance cost. However, the interest earned is subject to market pricing and may either go up or down, thereby forcing you to add some contributions.
d. Variable universal life insurance
Variable life insurance provides an investment aspect that allows your returns and savings to be invested with the aim of creating higher returns. This type of insurance is built off universal life insurance but uses sub-accounts to help carry out investment opportunities with higher returns. The disadvantage of this policy is that such investments are riskier and may lead to losses if not properly carried out.
e. Indexed universal life insurance
Indexed universal insurance is a type of insurance that is permanent and comes with a cash value and death benefit. As the name suggests, the cash value is pegged on various indexes and their performance. This type of insurance has a minimum cash value that one can benefit from depending on their index performance. However, it also has a cap on how much you can get from the index, making it easy for you to lose out if it does not perform well. The index is also put in force by the insurer, limiting the benefits you can get. However, it offers more security as you are assured of a cash value, reducing its risk.
f. Final expense insurance
This type of insurance provides an excellent option for those with expired term loans who do not have enough money to cover another policy or have limited finances. It covers everything related to one’s demise, including the funeral, cremation and medical expense. This coverage is appealing to older people or children with older parents who may want to ensure that their loved ones final send-off is taken care of. However, the downside of this policy is that it costs more compared to the premium you get. Thus, if you have other alternatives to cater for the funeral expense, that would be a better option. If not, this insurance offers a risk-free way for you to shield your family from having a hard time during and after your demise.
g. Guaranteed issue life insurance
Guaranteed issue life insurance is a unique policy that allows you to get insurance coverage without answering medical questions or divulging details about your health. It mainly focuses on whether one can pay the premium and does not discriminate underlying conditions. This makes it a vital policy for people with underlying terminal conditions that may have limited life insurance policies to choose from, as its main focus is whether or not you can pay the premium. This factor makes it extremely expensive, as the risks covered are higher.
h. Group life insurance
As the name suggests, this life insurance can be taken as a group, with colleagues or as an organization. It is mainly offered by employers to their employees. However, most group insurance offers bare minimums and may, in some instances, not be enough to help your loved ones in case of your demise. It is a great policy to get you started for those who do not have any, but complementing it is important.
i. Simplified issue life insurance
Simplified issue life insurance also offers an insurance policy where one does not have to take an interview to get the policy, making the process of getting insured much faster. However, a medical questionnaire is required, which is used to determine your eligibility for the policy. Thus the simple part of not taking a medical exam may be discarded if your medical questionnaire shows many red flags that may need a test.
Life insurance policies offer you a unique opportunity to take care of your loved ones and plan in case of any eventualities. It also helps you shield your loved ones, making it a necessary step to take. When deciding on the type of life insurance, think of the promise you want to keep to your family once gone. Understanding the various types of life insurance and what they have to offer makes it easy for you to decide and reduce the stress that comes with picking a life insurance policy.