Topic - Savings Tools
Published by| 12/10/22
Life insurance is a safety net that protects your loved ones from major financial downfalls in the event of your death. It's not exactly a happy topic to consider, but the future is uncertain, and it is better to prepare for the unknown. Life insurance can help you better plan your retirement life. It can even cover your car loan or your mortgage.
There are many life insurance policies available. Here, we will discuss a few for better clarity and understanding.
Types of Life Insurance Policies
Everyone likes to plan ahead, but not everyone is in the same financial situation to do so. Therefore, in the interest of making life insurance available to as many people as possible, insurance companies have devised different life insurance policies.
Broadly speaking, there are 2 basic types of life insurance policies: term life insurance and permanent life insurance.
Term Life Insurance
As the name suggests, this insurance policy covers the term of your life and then expires. If you do not die during the tenure of the policy, the policy expires without any payout. Here are a few of the different term life insurance policy types:
Simplified issue life insurance: This policy does not require any complex medical examination; however, based on the health-related questions asked during interviews, you could be turned down. If you are approved, you'll find that simplified issue life insurance usually has better rates/payouts than the 2 forms of term life insurance that follow.
Guaranteed issue life insurance: Issuance is based purely on your age. If you fall under the range, you can buy this type of policy without any medical examination. However, this is an expensive policy with little cash value. It is commonly used for people in high-risk groups who might not qualify for other forms of life insurance.
Group life insurance: This is generally offered by large companies to their employees. Spreading the cost over a group of employees can lower the rates, making it very affordable. However, these policies generally offer basic coverage only, and the payouts are relatively small.
Permanent Life Insurance
Unlike term life insurance, permanent life insurance (also known as whole life insurance) coverage maintains its benefits until your death, regardless of your age. One of the key additional benefits of permanent life insurance is that you can withdraw cash during your life or even borrow against your policy. Policy qualifications and fees might apply, but it is beneficial to know that this type of life insurance is available.
Let us briefly discuss a few policies that fall under the permanent life insurance umbrella.
Whole life insurance: With whole life, you will get guaranteed death benefits as long as you pay your premiums on time. This type of policy's cash value gives you a guaranteed rate of return. While whole life insurance is expensive, its benefits are valuable, and returns can be quite large for your family in the event of your death.
Universal life insurance: While this type has a generally smaller cash value, you can choose an age limit of 100 years to guarantee death benefits. The drawback is that if you miss even a single payment, you can forfeit the entire premium.
Variable life insurance: This type involves an investment with bonds and mutual funds of your cash value. While the monthly expense might be lower than that of other forms of whole life insurance, its value might decrease based on those investments.
Find the Policy That's Right for You
If you plan for your life, it makes sense that you should also plan for your family or loved ones' lives after the inevitable happens. Insurance companies have considered various earning levels to develop different policies, so you should be able to find a policy that suits your needs.