Life Insurance 101
If you are getting married, have children, or if you are starting a new job with benefits, you might be thinking about getting a life insurance policy. What you might not realize is that there are different types of life insurance, and that the plan sponsored by your employer might not be the best option.
The Different Types of Life Insurance Policies
There are two major types of life insurance: term life and whole life. In a nutshell:
· A term life policy lasts for a certain period of time, after which point you have the option of renewing or restarting the policy. If the policy is in place when you die, your surviving beneficiaries will get the payout on the policy;
· A whole life policy is in place for the rest of your life, but you also have the option of cashing it out or borrowing against it while you are still alive. When you die, your surviving beneficiaries will get the payout on the policy.
Of course there is a lot more to the story than that. Each type of policy has its advantages and disadvantages, about which we will go into greater detail.
photo supplied, courtesy of guest blogging network
Term Life Insurance
There are two kinds of term life policies:
· The annual renewable policy you renew each year; and,
· The level premium policy that is in effect for multiple years – usually between five and 20.
The annual renewable policy starts with a fairly low premium, but each year the premium can go up. The level premium policy locks you into a set premium for the length of the policy, but the rate could increase if you renew the policy after the initial term ends.
With both types of policies, the amount of the monthly premium depends on several factors, including your age and health history. Generally, premiums are lower for younger healthier people.
You can renew both types of policies each time the initial term ends, but some companies have upper age limits where you can no longer renew. If you reach the age limit, usually around age 80, some companies will give you the option to convert a term policy into a whole life policy.
Whole Life Insurance
Whole life insurance does not have a set end date and the premiums are usually fixed for as long as you keep the policy. These types of policies also act as investment accounts, which means they have cash value that you can borrow against, and which is tax deferred. However, the investment component also makes whole life policies more expensive than term life.
Who Should Buy Life Insurance
If you are an adult, over age 25, you should have life insurance.
Term life insurance policies are good for people who are just starting out, or who want to keep their monthly costs low. The provide coverage in the event that you die before you can pay off your debts, so that your loved ones don’t have to deal with it. They also provide protection for your loved ones if you die suddenly, and you were the sole breadwinner.
Whole life policies are good for people who are more established and have the financial means to pay higher premiums. They are also good for people over age 80, but the best way to get the most benefit from a whole life policy is to buy one as early as possible.
As we stated before, some employers offer life insurance as part of the benefits package. Offering these policies makes it easy for younger people to sign up for life insurance, when they might not consider it otherwise. The problem is that these policies are tied to the employer, which means the coverage ends when you leave your job. Also, you don’t have much choice about what type of policy you can get, or how much of a premium you pay. Instead of getting a policy tied to an employer plan, your best bet is to look into a term life insurance quote from an independent vendor. This way, you can take your coverage with you when you change employers.
A Note About Other Types of Insurance
Although term and whole life are the two major types of insurance, there is also universal life insurance and variable life insurance.
· Universal life insurance combines term life with an investment account that earns interest over the life of the policy.
· Variable life insurance is a whole life policy that also includes stock or bonds.
These types of accounts have varying rates of return, and also varying monthly premiums. Whether or not these types of policies would be beneficial to you depends on your individual situation.
For more information on life insurance policies, consult a licensed life insurance professional.
Having clients understand the difference types of life insurance is essential to helping the client become comfortable with their purchase. EMPOWERing instead of SELLing the client helps to build trust. Love the article and would be a great proof source in a meeting with a client.
Adam Lee has written a great informative article here. I have been building different Insurance websites for clients for years and very few of them have explained the differences like this.
I do have this question though, is there a whole Life Insurance policy that one could get that acts as a savings acount too? I have heard of a policy that could pay me after I retire.
Another policy that I think is unique is a ROP term policy. I hope you don’t mind me sharing this but this site. http://insuranceonly.net/quotes-5/rop-term-insurance/
explains that we could get all of our premiums back.
There are lots of different policies that are out there that I don’t know about because 90% of the policies I’ve read about as you mention are Term and Whole Life.
Once again, I really like your explinations of the different policies.
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