The type of life insurance coverage you choose depends on your situation. You might only need to cover the cost of your funeral. Or, you may want to ensure your family has long-term financial stability. Fortunately, there are several options to help you secure your loved ones' futures.
The six different types of life insurance include:
Whole life insurance is a type of permanent life insurance. This means you'll get coverage for your entire life, provided you make premium payments. A whole life policy is generally the simplest permanent life insurance option. The death benefit, or coverage amount, remains the same for the duration of the policy.
In addition, whole life policies have level premiums, so your insurance rate won't go up over time. Whole life policies don't need a lot of management — you simply set up your policy and enjoy the benefits. For example, whole life policies guarantee a rate of return on the cash value you build.
While your cash value growth may be slower than other permanent life insurance policies, a fixed interest rate makes it easier for you and your beneficiaries to plan ahead. However, these guarantees often make whole life policies the most expensive type of life insurance.
Term life insurance policies offer straightforward life insurance coverage for a set number of years. This simple type of life insurance is often the most affordable option for many people. A term policy works by choosing the length of time the policy is active and the death benefit amount.
Terms are often measured in set numbers of years, or policies are in place until you reach a certain age. For example, a 30-year term policy purchased in 2000 would expire in 2030. Term policies don't have a cash value component, so the death benefit payout is the only amount of money your beneficiaries receive.
Universal life insurance, also called adjustable life insurance, offers permanent life insurance with flexibility. These policies let the insured person adjust the death benefit and premium amount, within policy limits. Most policies also include a cash value component. However, the rate of return on the cash value is not guaranteed.
The adjustability of universal life products also makes them appealing to many insurance shoppers. With universal life, you can change your insurance policy to meet your current financial situation.
Variable life insurance is a type of permanent life insurance coverage that provides a fixed death benefit to your loved ones upon your death, as long as you pay your premiums. What makes variable life policies unique is the ability to invest the policy's cash value amount into various investment options, usually mutual funds or bonds.
If you make good investment choices, you could see significant gains in your cash value account. However, poor investment choices could cause your cash value account to lose money. Variable life policies often have higher premiums and are typically one of the most expensive types of life insurance.
Burial life insurance is permanent life insurance that helps your loved ones or dependents cover your funeral costs after passing away. Also called final expense or funeral life insurance, this coverage has a smaller death benefit than many other types of life insurance — typically ranging from $5,000 to $25,000.
Burial life insurance is one of the most affordable types of permanent life insurance. Burial policies are often no-exam life insurance, meaning an insurance company won't require medical underwriting to secure coverage.
Mortgage life insurance is a unique type of term life insurance that helps your loved ones cover your mortgage payments if you pass away. Unlike traditional term insurance policies, mortgage life insurance isn't tied to your age or a set number of years — it lasts as long as your mortgage is active.
Unlike most types of life insurance, mortgage life insurance coverage doesn't pay the death benefit to your loved ones. This type of policy pays the death benefit directly to the mortgage company.
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