5 Different Types of Life Insurance — and Which One Is Right for You
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Nicole Spector
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Many financial advisors assert that anyone with any fiscal responsibility for loved ones must get life insurance. This is because, should you die, life insurance will be a safety net for those left behind. If loved ones are relying on your income, they may get into some financial trouble if you pass away. Perhaps they’ll be unable to tackle mortgage payments, support their kids, or even cover the costs of your funeral.
Even if you know you need life insurance, navigating options can be tricky. There are numerous types of life insurance. Which one is right for you? Let’s explore.
Term Life Insurance
If you want the simplest, most affordable life insurance policy on the market, term life insurance should be your go to option.
“It provides coverage for a specified period, typically 10, 20 or 30 years,” said Daniel J. Adams, MBA, CFP, CLU and expert contributor at Annuity.org. “The main benefit of a term life insurance policy is its affordability: premiums are lower to start than those paid for permanent insurance and, as such, it allows the owner to buy the most life insurance for the lowest cost for a limited amount of time.”
Tim Hoolihan, licensed life insurance agent at Assurance IQ, points out that term life insurance can be “a useful financial tool for budget-conscious consumers when it comes to protecting income and debt.”
Whole Life Insurance
And then there’s whole life insurance. This type of plan is best for people who can comfortably pay higher upfront premiums.
“Additionally, the premiums you pay will go towards building cash value that can be withdrawn via policy loans on a tax-free basis to supplement retirement income, pay for college expenses, fund a long-term care insurance plan and provide a guaranteed inheritance,” Adams said. “However, whole life insurance requires higher initial premiums to offset the initial policy expenses.”
Universal Life Insurance
Universal life insurance is best suited for those who want to have some control over their life insurance investment returns.
“Universal life insurance offers the benefits of whole life insurance while providing flexibility in when you pay premiums and how much you pay,” Adams said. “A universal life insurance policy can provide guaranteed lifelong financial protection along with cash value, or it can be used for limited coverage time at a lower premium amount.”
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Indexed Universal Life Insurance
“Indexed universal life insurance is a type of universal life insurance, but it has become very popular in recent years and deserves its own explanation,” Adams said. “It includes all the features of universal life insurance but bases its cash value accumulation on the performance of a stock market index, such as the S&P 500.”
This type of life insurance is appropriate for those who want the benefits of stock market returns — with protection from the risk of losses.
Final Expense Life Insurance
If you do not currently have life insurance, it’s time to make end-of-life plans. It will cover your final medical expenses and funeral.
“A final expense life insurance policy is typically a type of whole life insurance policy with a very minimal benefit that will payout whenever the insured dies,” Adam says. “However, a defining feature of final expense life insurance is that it typically involves limited to no underwriting. This allows people who have health problems that would normally disqualify them for life insurance coverage to purchase a small policy to cover their final expenses. As a result, these policies generally have high premiums compared to the amount of coverage offered and without other benefits that other whole life insurance policies provide.”
Though everyone’s situation is unique, all of us can find a life insurance policy that works for us and our families. But shopping around is important; it can save you money.
“[Use] a licensed agent to receive quotes from different insurance companies can help you find the best rate,” Hoolihan said.
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