The Common Types of Life Insurance: A Detailed Guide

Is it time to start considering life insurance policies, but you’re feeling overwhelmed by the process? In 2020, 54 percent of Americans were covered by life insurance.

However, one of the largest barriers to getting life insurance is the cost. Many people overestimate the costs, leading them to not even start looking at options.

Not only do your gender, health, medical history, age, and other factors impact your rate, but there are also different kinds of policies that can suit a variety of lifestyles. 

With this in mind, read on to learn about the different types of life insurance in order to make the best decision for yourself and your family. 

Two Main Kinds of Life Insurance

When it comes to buying life insurance, all options will fall into two of these buckets: term or permanent (or whole life) insurance. Here are a few facts about them to get started: 

Term Life Insurance

This is the simplest form of life insurance. Lasting anywhere between one to thirty years, it only pays out if death occurs within that term. You also have level term insurance and decreasing term. 

Level term will remain the same no matter how many years have passed. Decreasing term insurance drops in one-year increments throughout the term of the policy. 

Level term life insurance is the most common type purchased. 

Permanent/Whole Life Insurance

Unlike term, permanent life insurance will last your entire life. If you choose permanent life insurance, you’ll also need to consider options of traditional, universal, and variable universal. 

Permanent life insurance is less popular than term life insurance because it can cost five to 15 times more. It also includes a death benefit as well as a cash value, which enhances its complexity. However, a cash value may be what you need if you’re worried about any dependents after you pass away.

Another type is a limited pay life policy. This type of permanent life insurance allows you to pay your premiums over a set amount of time and not your entire life. Your policy will still grow over time.  

Kinds of Life Insurance

Now that you know the two main types of life insurance, it’s important to keep in mind that you have even more options. These other types of insurance give you more options under permanent life insurance. 

Universal Life Insurance

This is a flexible choice if you’re worried about how economic factors will change over time. It allows you to increase the death benefit over time as well as adjust the premium payments if there’s enough money in your account. 

Simplified Issue Life Insurance

Most life insurance providers will require you to get a medical exam so that they can measure your risk of death. If you don’t want to undergo this exam, a simplified issue life insurance policy simply requires you to fill out a health questionnaire.

However, the trade-off is that you’ll pay more expensive premiums. 

Guaranteed Issue Life Insurance

For elderly people who are worried about how their health will impact the costs and make life insurance prohibitively expensive. Not only do you not need to have an exam, but you’ll also be able to skip the health questionnaire.

Of course, this will be a less attractive option to younger or healthier people, as the premiums will be higher. 

Final Expense Insurance

This type of insurance is typically only issued to people of a certain age. It only covers costs associated with the user’s death, such as funerals, cremations, medical costs, and more. It takes the burden off of their family if they don’t have a robust savings account.

Life Insurance for Infants and Children

The main benefit of life insurance for infants and children is that they’ll have guaranteed insurability in the future. This is important if you’re concerned about diseases or illnesses they’ll experience as they get older. It can also be a method of investment if it’s a permanent or whole life policy. 

Accidental Death and Dismemberment Insurance

This type of insurance only pays a death benefit if you’re injured or killed through certain accidents. Although the premiums won’t be as expensive, it’s not as comprehensive as traditional life insurance. 

Work-Related Insurance Policies

Keep in mind that there are a number of life insurance policies that your work may provide as well. However, they may not be as comprehensive as privately purchased term or whole life insurance.

Group Life Insurance

This type of life insurance covers multiple employees under one policy. It’s often included as part of a benefits package, so you’ll pay little to none of the premiums. 

However, it’s important to still consider purchasing a policy privately, as the limit can be as low as $50,000 or one to two times your yearly salary. 

Supplemental Life Insurance

Knowing how limited group life insurance is, your employer may also offer supplemental life insurance. This complements group life insurance so that the benefit is more substantial.

Corporate-Owned Life Insurance

This is also known as key person insurance. The company will take out a life insurance policy on a key person of the company, such as a founder or someone within the C-Suite. The business will receive the death benefit if that person passes away within the term. 

Benefits of Life Insurance

Now that you know most of your life insurance options, what are a few of the benefits that you can enjoy? Here are a few to help you make your decision: 

Financial Stability

The main benefit of life insurance is that they’ll have financial stability even while you’re gone. Beyond paying for medical and funeral expenses, larger coverage amounts can help them in other ways, such as:

• Paying off a mortgage
• Handling debt
• Funding college education
• Caring for children or elderly with disabilities
• And more

This is why the higher premiums for larger coverage amounts can be worth the investment. 

More Benefits

Beyond financial stability for your family, there are also additional benefits that you can enjoy. Here are just a few: 

• Tax advantages–most death benefit payouts are tax-free
• Cash value–if your insurance has a cash value, you can use it to pay later premiums or even retirement
• Some insurance policies include benefits even before death

If you’re still wondering which policy is best for you based on what you can afford, term life insurance is typically more affordable. It’s also simpler to understand, and you can walk away from it at any time.

Permanent or whole life insurance is more expensive but lasts your entire life. It can also provide death benefits as well as cash value benefits. 

More Time and Options

Last but not least, it’s important to keep in mind that life insurance is meant for the living. It’s meant to allow you to keep taking care of your loved ones even after you’re gone.

From taking care of daily living expenses to paying off debt and funding college educations, your family is free to use the death benefit however they see fit.

Most importantly, the death benefit gives your family more time. When an income earner dies, often families need to make tough decisions when they’re still grieving and dealing with overwhelming emotions.

A death benefit can make your passing easier. For instance, your family may not need to sell their house quickly or find a new job as soon as possible weeks after your funeral. 

However, it’s important to contact an agent as well as to do your own research to find out what options are the best for you. They’ll be able to take into account what you can afford now and in the future, the death benefit proceeds your family would need to keep living comfortable lives, and more.

Learn About the Types of Life Insurance to Make Your Decision

By taking time to learn the different types before buying life insurance, you’re ensuring that you’re making the most of your premiums. You’re also ensuring that your family will be taken care of after you pass away by looking into cash benefits or more comprehensive coverage.

Although no one enjoys thinking about the day that they pass away, considering life insurance options will give you remarkable peace of mind. You’ll be assured that no matter what happens in the future, you won’t have to worry about the well-being of your family and loved ones when it comes to their financial future. 

Ready to learn more ways you can safeguard your family and estate? Keep reading our blogs for more informative articles that will get you started on the right path.