What are the different types of life insurance?
Types of Life Insurance
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Life Insurance Types
What types of life insurance are available? Which life insurance types are best for you? What is the best life insurance company for the type of policy you’re looking to buy? All of these answers will depend on a variety of factors that we’ll address below.
Let’s get started!
What type of life insurance should I buy?
Are you like most life insurance shoppers? Are you overwhelmed with the life insurance shopping process? Are you trying to make sure you get the best plan at the lowest rate you can qualify for?
We’re often asked:
- “What type of life insurance is best?”
- “What type of life insurance do I need?”
- “What are the different types of life insurance?”
The number of life insurance types, choices and options that are available to consumers can be very stressful and time consuming. It’s sort of like buying a new computer
At first it may seem like a pretty simple purchase – You need a new computer, you go shopping for one and then you buy it. However, before you know it – you’re trying to figure out all of the options that are available. It becomes completely overwhelming in no time.
“Do I buy a Mac or Windows? What size screen? How many USB ports do I need? Processor speed, RAM size, Hard drive size?”
Life insurance is pretty similar. You may start off thinking a basic Term life insurance policy is what you’re in the market for. Term life is the easiest life insurance policy to understand and the most popular, but does it meet your goals? This article will help you better understand your life insurance options and figure out the best type of life insurance for you.
Types of life insurance
We’re going to dive deeper and learn about the different types of life insurance and how each of them can provide you financial protection.
Life Insurance Types 101
The two types of life insurance that people typically buy are:
- Term life
- Permanent life insurance.
Are you looking for life insurance coverage for a certain amount of time (Term Life Insurance) or for your entire life (Permanent Life Insurance)?
This is a good question to answer initially. There are so many options to choose from once you answer that question. You’ll be able to really customize you life insurance policy to suit you needs and meet your goals.
Term Life Insurance
Term Life Insurance Policies
The least expensive type of life insurance is Term life. Term is the easiest to understand and is the most basic life insurance coverage to buy. A term life insurance policy will provide you a death benefit only. Due to only providing you a straight death benefit, it makes term life the most affordable. This is especially true for healthy and young applicants looking for coverage.
Which of the following best describes term life insurance?
- Coverage forever?
- Temporary coverage?
Your term life policy will be bought for a specific length of time or “term”. Term life is temporary coverage.
Types of Term life insurance
You can purchase term life with a medical exam or without. Most term life policies have a medical exam, but that is changing. More companies are offering “no exam” policies. If you decide on a medical exam, it is scheduled by the agent or company. It’s also free.
The most common term lengths are for:
- 10 year term
- 20 yer term
- 30 year term life
- However, there are term life policies for 1, 5, 15, 25 and 40 year term as well.
There’s decreasing term life insurance as well as 1 year renewable term life insurance policies. These are all beneficial for certain situations. Situations like if you were in between jobs or needed to cover a short term debt.
Your premiums are typically level for the term period you selected. For example, if your policy was $88 per month and you bought a 30 year term. You would pay $88 per month for 30 years.
What if you were to outlive your policy and wanted to get additional coverage?
You would need to apply for a new policy and qualify based on your current age and current health status. There are term life policies that have conversion options that allow you to convert your term policy over to a permanent policy.
Each life insurance company that offers conversions will state the conditions of the conversion. Part of the conditions is stating when you must decide if you want to convert. Once this passes, you won’t have that option.
No Medical Exam Term Life Insurance
No Medical Exam Life Insurance Policies
A term life insurance no medical exam policy is just what it sounds like. You buy a life insurance policy without having to undergo a medical exam. Life insurance with a medical exam is how most insurance is purchased, but this has been changing.
Life insurance companies are beginning to offer more “Non Med” options. This is due to several factors such as improved technology that streamlines the medical underwriting process.
A life insurance policy with No Medical exam has the following key features:
- Extremely fast approvals. Some life insurance companies have instant or same day approvals as opposed to 6 weeks with a medical exam policy.
- Depending on the company and their underwriting criteria, a Non Med policy can be a great option for those with adverse or preexisting health conditions. This is because some companies only ask qualifying questions – if you pass those questions you can be approved. Not all companies ask the same questions. The key is finding the companies you can pass.
- Non Medical exam life insurance is typically more expensive than comparable plans with a medical exam. However, this isn’t always the case. This is especially true depending on the company you choose and your current/past health.
No Medical Exam Quotes
Find out how much skipping the medical exam will cost you. You’ll probably be surprised to see that no medical exam life insurance isn’t much more compared to policies requiring an exam.
How can I select the best term life insurance policy?
Shopping for and selecting the best term life insurance policy can be very simple.
It can also be a difficult task if you don’t know all of your options or how companies underwrite you. Finding and working with an independent life insurance agent is a great first step. (hint: Life Insurance Blog)
There can be a number of complicated situations that you are completely unaware of. These situation may limit the number of companies available to you and drive up the cost of your premium. Unless you are in perfect health and you’re young – an independent agent will be able to find out which companies will look most favorably to your unique situation.
If you are a little overweight, had any health issues, use tobacco, take medication, have a dangerous career or hobby – All of these factors (and more) are analyzed by the life insurance companies. Your agent will be able to which companies will give your the best deal.
If you use an agent that only works with 1 or a few companies – you may get a policy that is way more expensive than the competition. You might even be denied depending on how strict that company is.
Permanent Life Insurance Coverage
Permanent life insurance is an umbrella term for several types of products. Under the umbrella of Permanent are products such as whole life, universal life, index universal life and variable universal life. With permanent life insurance, you get lifetime coverage. Permanent coverage doesn’t limit the amount of time you’re covered like term life. In other words, a Permanent Life Insurance policy is the best option you’re looking for life insurance coverage to cover your entire life.
What type of life insurance has a cash value?
Permanent policies are completely different from Term Life. Not only do they provide lifetime coverage, but it provides cash value in addition to a death benefit. When you pay your premiums, the money that is in the cash value portion of the permanent policy grows tax deferred. There are a variety of permanent life insurance policy types. So let’s look at them to see how they’re similar and different.
Whole Life Insurance
Whole life insurance policies
Are there different types of Whole Life insurance or just one type? Whole life insurance has a variety of names. It can be called traditional whole life, straight life, continuous premium whole life and ordinary level premium whole life. That last one is a mouthful! Well, long story short – they’re all the same.
Term vs Whole Life
Which policy is better? When comparing term vs whole life insurance – it usually comes down to a couple factors.
Whole life is going to cost a WHOLE lot more (no pun intended). Term life will be much cheaper. If whole life insurance isn’t in your budget, then choosing term is easy. Term will only cover you for a specific period of time. If you need lifetime coverage, then whole life or another permanent product will be needed. Once you analyze these 2 factors, it will be much more clear and you can make an easier choice.
Whole life insurance quotes
Please use our instant whole life insurance calculator to compare whole life insurance rates. The Whole Life Insurance quoter will display multiple quotes – but not all companies provide online rates.
Your results will be a small sample of what’s available to you, but is a great way to see what whole life may cost you.
If you’re looking see all of your whole life options, please contact us and we’ll provide you a customized quote with many more carriers.
Universal Life Insurance
Universal life insurance policies
A universal life insurance policy, also known as UL, is a type of permanent life insurance that can build cash value. Your universal life premiums will be paid into the life insurance policy’s account value where the policy will earn interest (after a premium expense charge).
With UL, you have the opportunity to make cash withdrawals or policy loans from the cash value accumulation. The policy loan will accrue interest. Your death benefit and cash value will be reduced if you don’t pay back the loans and withdrawals. Your universal life insurance policy will last as long as there is sufficient cash value to cover the variety of deductions every month.
Guaranteed Universal Life
Guaranteed Universal Life Insurance Policies
A Guaranteed Universal Life insurance policy (GUL) is designed to provide coverage for your entire life. GUL isn’t designed for cash value growth which makes their premiums lower than whole life insurance. However, GUL is more expensive than term life. Guaranteed life insurance will give you a fixed premium to a specific age. You can buy a GUL from ages 90-121.
This is unlike Term life insurance, where you purchase a policy for a specific time range (10, 20, 30 years). In certain situations, a Guaranteed Universal Life policy is a better and cheaper option than a similar Term life policy.
Here are some key points and advantages of Guaranteed Universal Life:
- You can choose a GUL to cover you from Ages: 90, 95, 100, 105, 110, or 121
- Not as expensive as Whole life insurance.
- Provides coverage for your entire life unlike the possibility of Term.
- How Does Guaranteed Universal Life Insurance Work?
- Best Guaranteed Universal Life Insurance Companies
Guaranteed Universal Life Insurance Rates
Get instant Guaranteed Universal Life insurance quotes. Compare rates from all the top life insurance companies to see who has the best rates.
Guaranteed Universal Life Quotes
Be sure to select “Lifetime” when choosing the “Type of Insurance”. You will then receive Guaranteed Universal Life insurance quotes (GUL).
Index Universal Life
Index Universal life insurance (IUL) is a type of permanent life insurance. What makes an IUL different from the other kinds of permanent life insurance? The Index Universal life’s cash value growth is based on the equity index performance (excluding the dividends) and is collared by a cap and floor. The equity index is typically the S&P 500.
What if the indexes go down?
You will be safe with a guaranteed minimum interest rate. These guarantees will be based on the issuing life insurance company’s claims paying ability and financial strength. The life insurance company is responsible for the obligations under its policy.
The key features of an Index Universal Life insurance policy are:
- Greater potential of growth that a traditional universal life insurance policy.
- Premium payment flexibility.
- The money that is inside your life insurance policy will grow income tax deferred in indexed and fixed strategies.
- Death benefit
Variable Universal Life
Variable Universal Life Insurance Policies
Variable Universal life insurance policies (VUL) are a type of permanent life insurance designed to build cash value and provide a death benefit. This is similar to all permanent life insurance policies.
How does a Variable life insurance policy differ from a Universal life policy? The VUL can provide you the chance for a greater return based on its investments in the market. Universal life will offer you a fixed interest rate. Your investment options with a Variable life insurance policy may be altered with changes to the market.
These changes may cause you to lose value in the VUL policy. The Variable life insurance policy has charges and fees that other permanent life insurance policies don’t have. There is no guaranteed minimum cash value in a Variable life policy.
Variable Life Insurance
A Variable Life Insurance policy is another type of permanent life insurance. The cash value of the Variable Life policy is invested into other sub-accounts.
These sub-accounts are very similar to a mutual fund.
The Variable life insurance can offer you the possibility of a greater death benefit and cash value when compared to other permanent life insurance policies. This greater growth potential is due to you determining how your Variable life policy’s cash value will be invested.
You will be taking on more risk with Variable life, but you also have higher growth potential. Shoppers must understand the investment risks involved with Variable life. If you do, then it can be a good life insurance choice.
Let’s now look into how Variable life insurance works.
- Variable life will let you choose how you want the cash value growth to be invested. You will have several investment options and asset classes to choose from.
- Your Variable life insurance investment options can be subjected to the fluctuations of the market which can affect your policy and lose value.
- Variable life allows you to select a lower or higher premium payment. These have limits however. You Variable life policy will decrease or increase according to these payments.
- The Variable life policy provides you the option to alter your death benefit amount and option. It will be based on your Variable life policy provisions.
- The ability move funds in your investment options. This will enable you to modify your goals throughout your life if your needs change. Please make sure to read your Prospectus – you must do this before sending or investing your money.
A variable life insurance policy’s death benefit will never go under the listed guaranteed amount. However, your death benefit can adjust up or down. Variable life insurance is risky, but has the ability to grow more than a typical Whole life insurance policy.
How to get the best rates for all types of life insurance policies?
This post has hopefully provided you with a good foundation of the different types of life insurance available to you. Your next step as an educated life insurance shopper is to get life insurance quotes. Whether you’re shopping for a $250,000 life insurance policy or a 30 year term $2 million life insurance policy. You need to have your case shopped by an expert.
At Life Insurance Blog, you can use our free life insurance quoter to get a variety of term life and Guaranteed Universal Life insurance quotes.
Life insurance face amounts
Our life insurance calculator goes up to $10 million. That’s too much for most people. How much life insurance do you need and what payout amount would be best? This is one of the biggest decisions to make before applying for life insurance. Do you need a small policy to just cover funeral expenses? Perhaps you need a very large benefit because of your estate or business requirements? Here are some specific posts on some of the most popular face amounts:
What type of life insurance should I get?
So what is the best type of life insurance to buy? It will depend on your specific goals. We can help. We’ll take the time to understand your goals and research which companies will give you the best rates and the best chance to qualify.
With over 60 of the best life insurance companies to choose from, we’ll shop your case before and after you apply so you know you’re getting the best rate available on the market. Thank you for reading our post, Life Insurance Types. Please leave a comment or question below.