Many people wonder if it’s necessary to buy life insurance. Indeed, there are several benefits of life insurance, and as long as living is risky, it is essential. Therefore, everyone should buy life insurance at some point in time.
However, you might be confused about the types of life insurance to buy out of the different types available. Though you may choose to go for general insurance, choosing a specific type helps cut down cost.
In this post, you’ll get comprehensive information on life insurance and the different types of life insurance out there. Furthermore, it will give you an idea of the type of home insurance that suits your present need. Therefore, remain with this post to the end so you won’t miss any detail.
What is Life Insurance?
Life insurance is when there is an agreement between an insurer and a policyholder on risks concerning longevity. Here, the insurer promises to pay a certain amount to a particular beneficiary in the demise of the assurer. Aside from death, a terminal illness or disease may also lead to the payment according to the policy requirement.
For instance, if a man buys life insurance, he becomes the assurer. He might choose the beneficiary to be his wife and children. Hence, when he dies, the insurance company will pay the amount from the policy to his wife and children.
Life insurance is vital when considering the welfare of your loved ones in your absence.
Types of Life Insurance
There are several types of life insurance for different purposes. They include:
- Whole Life Insurance
- Term Life Insurance
- Universal Life Insurance
- Variable Life Insurance
- Mortgage Life Insurance
- Supplemental Life Insurance
- Joint Life Insurance
- Funeral Insurance
Whole Life Insurance
This type is the most common among the types of life insurance. It provides coverage throughout the entire duration of a person’s life.
Life insurance operates by building cash value over time in the policy’s account. It begins by using a part of the premium payment and adding interest to it. In this type of insurance, there is a guarantee for three significant factors in the policy:
- Firstly, the premium will not increase with time
- Secondly, the death benefit will remain the same
- Lastly, the cash value will earn a fixed rate of return
This type of life insurance is suitable for those who want coverage for their whole life. However, it is costly because of the guarantee features.
Term Life Insurance
This type of insurance is like the opposite of the former. It has a specific end date when rates stay the same for the term period. When the particular level period is over, you may renew the policy, but it may come with higher rates.
Term Life Insurance is one of the cheapest ways to buy life insurance. With it, you’re paying only insurance coverage for the value of your money and not for cash value life insurance. Also, you have choices of coverage length, which could range from five to as many as thirty years.
Furthermore, Term Life is most suitable for those in a temporary risky situation and wish for life coverage. For instance, some people buy it when they begin a dangerous job if they pass away. Others might believe it to cover a large debt or loan years.
However, it becomes terrible when you cannot afford the renewal rates with time.
Universal Life Insurance
Though similar to whole life insurance, some tweaked features with varieties. Also, it is cheaper than whole life insurance because it’s less standard than it. This form of insurance allows you to vary premium payments and tweak the death benefit amount.
However, you should keep in mind that there are limits to it. Also, the policies usually have a cash value component.
Therefore, it is suitable for anyone who wants lifelong coverage but cannot afford whole life insurance. However, note that some varieties tie the cash value gains to the market performance. If the cash value gains are your primary focus, you might not make enough gains from the UL insurance.
Variable Life Insurance
With variable life insurance, there is permanent coverage with cash value. Here, you choose sub-accounts to invest in as a policyholder. The cash value in the account grows with your decisions, and if you’re not careful, you can lose money.
It is advisable for those who want lifelong coverage and seek an active role in their life insurance investments. However, they should be risk-takers and ready to lose money on their death benefits if they make the wrong investments.
Mortgage Life Insurance
This type of insurance covers only the balance of any previous mortgage with no additional coverage. Unlike the earlier types, this type of insurance doesn’t pay the amount to a beneficiary but the mortgage lender. It pays the mortgage balance to the lender or a partial amount of the balance if insured.
Hence, if there is a debt burden on the family, this type is best to handle it. However, though it may pay the loan, it will not provide any financial support to the family. So you might want to consider a term life insurance instead with the loan in the target.
Supplemental Life Insurance
Supplemental life insurance doesn’t insure single individuals but groups of persons. It is cheap because it covers multiple people in a similar field. However, losing your job or something similar can forfeit the insurance.
Joint Life Insurance
Also known as survivorship life insurance, this type of insurance ensures two people under a policy. Joint life insurance pays out the amount to the beneficiary only if both insured persons have passed away.
It is perfect for couples who would like to support their children in their absence or to donate.
Also known as burial insurance, the aim is to pay funeral costs and final expenses when someone dies. This policy is not turned down in most cases and doesn’t require a medical exam. It is advisable for those with poor health who don’t have whole life coverage.