If you’re shopping for life insurance coverage, you’re probably asking yourself: “What kind of life insurance do I need?” Term life? Permanent life? Variable life? Variable universal life? What do all of these terms mean, anyway — and which one is going to provide your family with the best coverage at the best price?
There’s a lot to consider when you’re thinking about life insurance. How much can you afford to pay in monthly premium payments? How long do you want your coverage to last? What kind of death benefit would you like to leave for your loved ones? Are you taking out life insurance to cover your final expenses, or are you hoping to use your life insurance policy to ensure your family can continue to cover their day-to-day expenses (the mortgage, the groceries, etc.) after you are gone?
Taking out a life insurance policy just to cover the cost of your own funeral is a very different thing from taking out a life insurance policy that helps replace the income you provide your family. Life insurance comes with numerous options and opportunities, and it’s up to you to decide which is best for you and your family.
Choosing the right life insurance coverage is an important step towards protecting your loved ones and ensuring your own peace of mind. We can’t tell you what kind of life insurance policy is right for you — but we can break down the various different types of life insurance so you know exactly what you’re signing up for.
So if you’re wondering, “What types of life insurance should I get?”, we are here to help.
Term life insurance
Term life insurance is an easy and affordable way to protect your loved ones against a worst-case scenario. Term life is also one of the most popular forms of life insurance out there — which means that if you are asking yourself what kind of life insurance you need, you might want to start by considering a term life insurance policy for your financial needs.
As the name implies, term insurance provides life insurance coverage for a specific length of time for the insured person. Most term life insurance policies offer 10, 15, 20 and 30-year terms, and you can decide what term length is best for you. Many people choose a term length that covers their loved ones through a major life milestone. If you have a 30-year mortgage, for example, you might want to take out a 30-year life insurance policy. If you are 15 years out from retirement, a 15-year policy might be best for your financial needs. Some parents take out 20-year policies to cover their families until their children graduate from college.
This (and all kinds of) life insurance come with a death benefit, which is the amount of money paid to your beneficiaries when you die. This death benefit is often referred to as the coverage amount, and typical life insurance coverage amounts range from $100,000 to as much as $3,000,000. (It goes without saying, but the more coverage you get, the higher your monthly premium payment will be.) In most cases, the death benefit can be issued in a lump sum, and it can be used to cover funeral expenses as well as serve as a salary replacement to help your dependents or beneficiary. If you want to ensure your loved ones are able to both survive and thrive after your death, a term life policy could provide the protection you need.
Term life insurance policies are also extremely affordable. You won’t get the cash value that comes with permanent life insurance plans, but you’ll pay a much lower life insurance rate when going with this type of insurance. Plus, you’ll only be paying for the amount of life insurance your family really needs. If life insurance is going to be part of your long-term financial plan, getting a few good term life insurance quotes should be on your immediate to-do list.
Medically underwritten term life insurance
Most term life insurance policies are medically underwritten, which means you’ll need to take a life insurance medical exam as part of your application process. Don’t worry — the exam can be completed in your home at a time of your choosing, and shouldn’t take more than 30 minutes.
Life insurance companies use the medical underwriting process as a way to assess your health and identify any potential risks. (Smokers, for example, are considered riskier than non-smokers — which is one reason to consider kicking the cigarette habit). The exam, along with questions about your current hobbies, family medical history and other relevant factors, helps determine both your eligibility for term life insurance and the amount you’ll pay in monthly premiums.
No medical exam life insurance
If you don’t feel comfortable taking a medical exam, you can also apply for no-medical-exam life insurance, otherwise known as simplified issue life insurance. This type of term life insurance policy is not fully medically underwritten, so it is likely to be more expensive than a standard term life policy. Since the life insurance company doesn’t know as much about your medical history or risks, they’ll both limit the amount of coverage you can get and raise the cost of your premiums.
It’s important to be honest in the application process. The issuance of the policy or payment of benefits may depend upon the truthfulness of answers you give in the application.
Permanent life insurance
Permanent life insurance is the other major category of life insurance coverage. Unlike a term life insurance policy, a permanent life insurance policy offers lifetime coverage. (You might say that a permanent life policy covers you permanently.) This type of permanent coverage comes with a higher life insurance rate.
Like term life policies, a permanent life insurance policy provides a death benefit that is generally paid out in a lump sum. However, permanent policies also come with a cash value. The policy’s cash value accumulates with every premium payment, and in most cases the policyholder can withdraw some or all of the cash value and use it to pay for anything from college costs to retirement expenses.
Permanent life policies are attractive because they allow you to both provide for your beneficiaries after your death and accumulate money while you’re still alive. The cash value can serve as a type of savings, and some types of permanent life policies even allow you to invest the cash value of your policy.
Variable life insurance
Variable life insurance is a form of permanent life that allows you to invest the cash value of your policy. While these investments could increase the value of your cash value, and ultimately the coverage your policy provides, they could also decrease the policy’s cash value, in which the cost to maintain your coverage becomes more expensive.
Universal life insurance
A universal life insurance policy is another type of permanent life insurance — but it comes with the option to pay flexible premiums. Most life insurance policies have fixed premiums, where you pay the same amount of money every month. Universal life insurance gives you the opportunity to use the cash value of your policy to cover your monthly premium payments. Universal life also gives you the opportunity to pay more than your monthly premium amount in order to increase the cash value of your policy.
You can also choose a variable universal life insurance, which lets you put the cash value of your policy into various investment options. Variable universal life gives you the investing power of a variable policy combined with the flexibility of a universal life policy — but you’ll pay much higher premiums than you might pay with a term life insurance policy.
Guaranteed issue life insurance
Guaranteed issue life insurance is a type of permanent life insurance known as final expense insurance (that is, insurance that pays just enough money to cover your final expenses). As the name implies, everyone who applies for guaranteed issue life insurance is issued a policy — but premiums are relatively expensive and you’re typically limited to a death benefit of $50,000 or less.
Employer-provided life insurance
Many people sign up for group life insurance plans through their employer. These plans are often offered during open enrollment, along with health insurance, disability insurance and other types of insurance coverage.
In most cases, group life insurance policies are guaranteed-issue (everyone who applies gets accepted) and do not require a medical exam. Your employer might pay a portion of your monthly premiums — or even cover the entire cost of the policy.
What’s the drawback? You aren’t likely to get as much life insurance coverage with a group life insurance plan as you would with a term life insurance policy or a permanent life policy. In fact, some people choose to supplement their employer-provided life insurance with an affordable term policy, just to ensure that their loved ones will have the protection they need. Being underinsured isn’t much better than being uninsured, after all.
Life insurance riders
Life insurance riders are common with life insurance, and can be added to both term life insurance and permanent life policies. Most riders will increase your monthly premium costs, so talk to your life insurance company about your options and only sign up for the riders that are most likely to benefit you and your family.
There’s a lot to think about, when considering life insurance policies. Do you want the affordability of a term life plan? Should you get a permanent life insurance plan for the cash value, or would you be better off saving or investing your own money? Are there any life insurance riders you should consider?
Ultimately, the question of “What kind of life insurance do I need?” comes down to determining what kind of coverage is best for your family — and how you can get that coverage at the best, most affordable price. For a lot of people, that means term life insurance. We can’t say what type of life insurance is best for you — but we can do our best to explain the different kinds of life insurance, so you have the tools you need to make an informed choice.
For more information about Life Insurance call JCT Insurance Agency at (626)354-2000 or email jctfinancialsvc@gmail.com