Life Insurance

Three Main Types of Life Insurance

There are three main types of life insurance briefly explained : whole life, universal life, and term life insurance. In each of the three broad types, there are many variations of each but we will take a look at the broad categories while pointing out a few of the finer points of each type. Just to be clear, this website will not ever tell you that one type of life insurance is better than any other. Each category serves its own unique purpose for unique circumstances.

Remember, first and foremost that life insurance exists to pay a death benefit to your chosen beneficiary(s) when you die. Nearly all types of life insurance also offer some sort of living benefit nowadays as well.

Whole Life Insurance

If you are looking for absolute guarantees, there is no product that compares to whole life. In addition to its promise to pay a death benefit if the premium has been paid, it also offers a very stable and safe savings plan. There are all sorts of opinions on the internet about whether whole life is any good, whether it is worth it, and/or is it just a total ripoff. We can say definitively that it’s not a ripoff. That being said, it should be used appropriately for the right people. Policy design, setup, and service are extremely important for the policy owner to have a satisfactory outcome, particularly when looking at the savings component which is formally called the cash value.

Universal Life Insurance

Universal life insurance is really a term insurance policy with a savings component attached to it. Just like all other types of life insurance, there is a raw cost to insure your life. In a universal life policy, this is known as the cost of insurance and it is clearly disclosed for you. At its core, you must pay enough premium to cover the cost of insurance to keep the death benefit that you purchased in force.

Term Life Insurance

Term life insurance actually gets the name from the fact that it is life insurance purchased to cover you for a specified period or term. At the end of the term, your level, fixed, and the affordable premium is over and so is your coverage.

Well, that really describes level term life insurance which is offered most commonly in 10, 15, 20 and 30-year terms. There are other types of term insurance but they are largely fading into the past and not entirely relevant anymore. Those other types are decreasing term and yearly (or annually) renewable term insurance.

The vast majority of term life insurance sold today is level term insurance (10, 15, 20 or 30 year level periods).

In most cases at the end of the term, the life insurance company will allow you to continue the same coverage but at a greatly increased cost.

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