Life Insurance Types
Make sure your beneficiaries are taken care of in the event of a loss of life.
Life Insurance is a contract between the policy holder and the insurer. It is a promise from the insurer to pay the designated beneficiary (or beneficiaries) a specified amount of money in exchange for a premium, upon the death of the insured person, usually the policy holder. In some cases, a terminal illness may allow dispersement of funds pre-death.
Term Life Insurance
Term Life is a policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. This type of insurance policy contrasts with permanent life insurance, in which duration extends until the policy owner reaches 121 years of age (i.e. death). *
Pros and Cons
- Term Life Insurance is Much Cheaper than Universal or Whole Life.
- Choose the length of term that works for you: 5, 10, 15, 20, 25, or 30 year Term.
- You can stop paying at any time. For example, if you have a 10 year term and decide you don't want, need, or can't afford it after a few years, just stop paying the premiums.
- The downside is that no coverage exists after your term length, unless you convert it to whole life at some point within the term or allow it to go to ART (Annual Renewable Term), which is quite costly! The whole life rate is dependent upon current age, but only the health class you started the term policy with (not your current health class necessarily).
- You can add riders to the policy that give you your money back at the end of the term, but these are an added cost.
- Critical Illnesses often allow funds to be accessed pre-death if necessary for medical care.
Universal Life Insurance
Universal Life Insurance is a type of permanent life insurance, and it is somewhat of a hybrid of both term & whole life. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy.
PROS & CONS
- Premiums and Coverage is flexible based on how much money you put in.
- Unlike term, universal life can accumulate a cash value, which you might be able to borrow against while you're still alive.
- Universal Life Insurance is Permanent Insurance, meaning as long as your payments meet the increasing costs of the term part, you can't outlive your policy. The downside is that by being "part term/part whole", more of your premium goes to the term part as you age, meaning less cash accumulation unless contributions are increased over time.
These policies have a fixed premium, meaning you pay the same amount each and every year for your coverage. Much like universal life insurance, whole life has the potential to accumulate cash value over time, creating an amount that you may be able to borrow against.
PROS & CONS
- Level premiums that stay the same for the life of the policy
- Cash value accumulation that you can use while you're still alive, guaranteed by the insurance company.
- You can't outlive your policy protection!
- The biggest downside of Whole Life Insurance is that the cost is multiple times that of term life. If getting the most coverage for the least amount of annual cost, this might not be for you.
Whole Life Insurance
Payment Options: You can choose to pay monthly, quarterly, or annually. Also, there are "paid up" options.