Types of Life insurance explained and life insurance rates and life insurance policy
There are many different kinds of life insurance. Term Life, Whole Life, and Universal Life are just three of the most basic kinds. Check out life insurance expert Byron Udell break down the main three different types of life insurance.
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When you boil it down, there are really only two kinds of life insurance: “Temporary” coverage, which is called “Term Insurance”…and “Permanent Insurance.”
Both Term and Permanent life insurance come in various shapes and flavors to satisfy different needs.
Permanent insurance is designed to provide coverage for as long as you live. If your needs are long-term, like estate planning or final expenses, or if you just want to leave a bigger legacy, no matter when you die, permanent life insurance is probably the way to go.
There are lots of different kinds of permanent insurance, but the two primary categories are…whole life and universal life. And I’ll come back to these in a minute.
Term life insurance is, by definition, “temporary” insurance. It’s designed to provide coverage for a limited period of time, typically 10, 20 or 30 years. Term policies are simple and extremely inexpensive. In most cases, your cost each year is guaranteed to remain level for whatever the term is. Again, typically 10, 20 or 30 years. After the term is over, make sure you’re sitting down when you receive your premium notice, because your rates are going to jump up dramatically. Sometimes by a factor of as much as 10 or more.
But some of these policies have a built-in conversion option that’ll allow you trade in your term coverage for a shiny new permanent policy.
Term life makes sense if you know when you’re going to be financially independent or if you’re sure there’s some date down the road where no one will be depending on you anymore financially. Like when your kids are all grown up and your mortgage is all paid off.
Term is also good when you’re younger and your biggest concern is getting the protection in place and keeping your costs down.
If you’re a non-smoker in your 30s and healthy, you can buy a 20-year, $250,000 term policy for less than $20 a month.
Sounds too good to be true? Well, it’s 100% true.
Now back to Permanent Life Insurance. Whole Life and Universal Life insurance are more expensive than Term, but let’s look at what you’re getting for the money.
Unlike term insurance, permanent insurance in generally designed to last forever. You can’t outlive a permanent life insurance policy. With most permanent policies, as long as you pay your premiums on time, your family is guaranteed to receive the death benefit…no matter when you die. Whether that’s tomorrow or 50 years from now.
Unlike term insurance, permanent insurance policies can also build cash surrender values, which can be accessed at any time, for any reason. You can set up your premiums to be level of life…guaranteed. You won’t have to worry about premiums going up when you get older and forcing you to drop the policy. Nor will you have to worry about being healthy enough in the future to have to requalify or replace the coverage. If you like, you can also arrange to pay for the policy over a shorter period of time, say 10 years, so after that, you own the coverage…and no further premiums are due for the rest of your life.
Universal Life Insurance, one kind of permanent life insurance, offers a certain amount of built-in flexibility. You have the ability to change your premiums and death benefits to keep pace with changes in your life.
Whole Life Insurance is what I refer to as the “Rolls Royce” of life insurance. Whole life costs more than all the other types of life insurance we’ve discussed, but it does more. Over time, these policies develop significant cash value that are guaranteed and can be accessed at any time. Regardless of what happens in the economy, each year, the cash values grow…guaranteed.
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