What Types of Life Insurance Are There?
It’s hard to control everything that happens in life, but you can do your best to prepare. When the worst happens, life insurance secures your family’s finances. Learn about the different kinds of life insurance and the different ways they can keep you covered.
Term Life Insurance
Term insurance covers you for a set period of time. Unlike permanent life insurance, these plans cover periods that usually last 10, 20, or 30 years. At the end of each term, policyholders can either renew or switch their plan.
Should I Get Term Life Insurance?
Because permanent life insurance can be costly, term life insurance is usually the go-to choice. These plans generally cost less, especially if policyholders are at a higher risk. Though costs vary from client to client, younger claimants can easily get coverage for $200–$300 a year.
If you’re a breadwinner in a family with young children, term insurance is a good idea. A 10- or 20-year plan will help cover the expenses of raising a child until they move out on their own. Term insurance can help guarantee funding for large, limited expenses like funding your child’s education or paying off your home’s mortgage.
Since term plans only cover a finite period, not the customer’s entire life, the plan does not guarantee a payout when a person dies. It also does not necessarily have the tax benefits or interest rates of other coverage types, such as permanent life insurance.
Permanent Life Insurance
Permanent life insurance is exactly what it says on the can. The policy covers a client their entire life, and the policy does not need to be renewed. While it’s not always affordable for everyday claims, some types of permanent life insurance have benefits.
Whole Life Insurance
Whole life insurance plans have stable payments that do not change over time. They are the most common type of permanent insurance and offer a guaranteed rate of return. Depending on the plan, you may earn dividends, which are essentially returns on your paid premiums.
Universal Life Insurance
Compared with whole life insurance, universal life plans offer a bit more flexibility. You can increase the cash payout on your plan using investment options tied to your policy’s cash value. The cash value of your policy can work like a savings account. When you put extra money towards that value, it can help you in the long run.
Cash value is essentially extra money that you can use in many different ways. You can use it to take out a loan. You can also put it towards premiums and even skip payments without losing coverage. It can even make you money by accumulating interest or through investments. Talk with your insurer to discover the different options for cash value.
Should I Buy Permanent Insurance?
If you want to make sure your beneficiaries get a payout absolutely, permanent insurance is more reliable. Term plans expire and may not completely cover a policyholder’s lifespan. Permanent plans also accumulate cash value, which you can use while you’re still alive. However, permanent plans are more expensive, anywhere from 5 to 12 times more than term insurance.
Group Life Insurance
Group life insurance is when an organization offers plans to a specific group. Usually, this is when employers offer life insurance plans to their employees.
Should I Get a Group Life Plan?
Group plans are great if a client has trouble getting normal life insurance. Pre-existing medical conditions or “high-risk” habits and hobbies can increase prices, or they can even prevent you from getting insurance. If you have an employer or agency that provides you with a plan, you don’t have to worry about not qualifying.
Group plans can also be very cost-effective. Most of the time, the cost of the premium is split between you and your employer. Even if your premium costs $7,188 (the average cost of single group premiums), the average employee only pays about $1,655.
However, while a group plan is an easy way to get insured, it may not be as comprehensive as a regular plan. Carefully consider the conditions of a group plan, especially If you already have a life insurance plan. If you want a better guarantee of a payout or a bigger payout, group insurance might not be for you.
Joint Life Insurance
As the name implies, joint life insurance provides one plan for two policyholders. This plan is usually found between married couples who want to provide for their children if the worst should happen. Couples may choose specific types of joint plans that provide payouts whether one or both clients passes away.
Should I Get Joint Life Insurance?
If you own a business or want to take out loans based on your policy, a joint plan can make the process easier.
A single joint plan can sometimes be more cost-effective than two separate plans. This is usually the case where the two clients are young and healthy. However, if one party has pre-existing conditions, it’s usually cheaper to pay for separate term plans.
Keep in mind that divorce can complicate things; if you’re forced to cancel a joint plan, you may lose the money that you’ve put toward your coverage.
Death Benefits v. Living Benefits
While most people only think of life insurance as benefiting their children, in some cases it can be used by the policyholder themselves.
Death benefits are what we usually think of: when a company provides coverage in case of death. But life insurance can also payout to policyholders if they include living benefits. This allows a policyholder to draw out money if they have a debilitating chronic or terminal illness.
What Affects Life Insurance Premiums
No matter your plan, insurers do not expect clients to pay for their coverage all at once. Instead of a single lump sum, payments are spread out over annual payments, known as premiums. The average cost of life insurance is around $44 per month, or about $538 per year. Because this is an average, it does not necessarily reflect the different costs of each type of insurance plan.
Whether you have term, permanent, group, or joint plans, the type of insurance you have plays a big role in your premium cost. For example, term plans are generally cheaper than permanent or joint-life coverage. However, there are still other factors that determine the price of your premium. Listed below are some of the most common factors that affect prices.
Length of Coverage
If you have permanent insurance, your plan will insure you for the rest of your life. However, any other type of insurance will have a limited lifespan. The longer the plan covers you, the greater the cost. A 10-year plan will cost less than a 20- or 25-year plan of the same type.
How much your plan pays out will also affect your yearly costs. If your recipients get $200,000, it will be cheaper than a plan that’s worth $350,000.
Age is the biggest determining factor for most claims–clients over the age of 60 pay substantially higher premiums than those in their 20s and 30s.
When taking on a new client, an insurer will look at their medical history for potential risks.
Smoking is also one of the biggest liabilities that affect life insurance coverage. An older, chronic smoker can end up paying hundreds of times the regular cost. However, some insurers offer preferred smoker rates for people who smoke less frequently.
Before taking you on as a client, an insurer will usually ask if you participate in risky activities. Skydiving, mountain climbing, scuba diving, and even a poor driving record can increase your premium.
The Insurance Provider
Different companies will offer different rates for policyholders. The best way to find out how much it costs to get life insurance is to ask.
Research online and collect quotes for different plans. Compare quotes with Versured to help you gather quotes from many different companies. With a little help, you can compare prices easily and get an affordable plan that fits your needs.
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