Not all life insurance policies are the same. Some expire after a set period of time, while others last as long as the insured needs it. Some have modest payouts intended to cover funeral costs, but others have larger payouts that can be used to pay off mortgages, send the kids to college and more. And while life insurance is most commonly associated with the death benefit, some varieties even let the insured tap into funds during their lifetime.
When it comes to life insurance, you have a lot of options. Before making a decision, consider which of the four main types of life insurance is right for you.
Funeral insurance, also known as pre-need insurance, is intended to cover the costs associated with burial or cremation.
These costs – which often include preparation and transportation of the body, a casket or urn, the burial plot and services – can really add up. According to the National Funeral Directors Association, the average funeral costs around $7,360 to $8,755, depending on which options are selected.
Unexpected funeral expenses can make a difficult time even more stressful, but funeral insurance can make it so that loved ones have one less thing to worry about.
Term Life Insurance
Term life insurance provides coverage for a predetermined period of time, which is often anywhere from five to 30 years. After that, the coverage ends unless the policy is renewed or extended.
On the plus side, this type of life insurance tends to be very affordable. On the downside, however, renewing or extending coverage can come with a steep premium rate increase. This makes term life insurance an affordable option for people hoping to give their family a financial safety net for a limited period of time, say until the mortgage is paid off or until the kids are grown.
Whole Life Insurance
Whole life insurance is a type of permanent life insurance. Unlike term life insurance, the policy does not expire. With many policies, the premium remains constant.
Over time, a whole life insurance policy accumulates a cash value. The policyholder can tap into this cash value by taking out a loan. This loan can be used for any purpose, and it does not need to be paid back, although this will decrease the death benefit. Additionally, some policies pay dividends to policyholders.
In this way, whole life insurance can pull double duty as an investment tool.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance. It is very similar to whole life insurance in many ways, including the accumulation of a cash value that the insured can tap into for any reason.
One key difference lies in the flexible nature of the premiums and benefits. With universal life insurance, policyholders can adjust the amount of premium they pay, as well as the amount of coverage. Additionally, universal life insurance is tied to the market indexes. When the market does well, your investment does well – and vice versa.
For people who would prefer to avoid the risk and variability associated with universal life insurance, guaranteed universal life insurance provides another option.
If none of these options sound quite perfect for your needs, the right rider might create the ideal fit. For example, living life insurance riders can allow you to claim a benefit under additional circumstances, such as severe illness.
Not sure which type of life insurance if the best fit for you? Contact us to discuss your needs.