This post will discuss the types of life insurance policy you can consider. Life is precious and that is why you have to do all you can to safeguard yourself. You should do so while you are active and earning a good living. Life insurance is a plan to keep your loved ones safe if there is untimely death and you are no longer around. Life insurance, gives you the assurance that your family is covered. Also, the payouts are not subject to taxation. Life insurance has two main types. You have term life insurance that protects you for a period of time ranging from 10 to 30 years.
Term life also has sub-categories like common types of level term and the return of premium and renewable types. Besides, you also have Permanent life also called whole life insurance that covers you throughout your lifetime. And, Permanent life is also subdivided into three. Let us move forward and explain the details of these types of life insurance policy right away.
Types of Life Insurance Policy
Term life insurance
The first type of life insurance policy you have is called the Term life insurance policy. This policy protects you for a given period of time. You have terms ranging from 10 to 30 years. This is the most affordable policy you can have. And if anything happens to you in the term of the contract the insurance company will send payouts to your beneficiaries.
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Also, Term life insurance is either the “level” term and the “decreasing” term. The level and decreasing refer to a death benefit amount of the policy. And if you have a level term policy, the payout is the same benefit amount if the policyholder dies during the term of the policy. Hence most people buy the level term policy.
Like I told you earlier, there are different types of term life and they include common types of level term, the return of premium and renewable types. Let us look at them briefly.
Common Types of Level term
After discussing the types of Life insurance policies that exist, let us analyze the Term life insurance categories.
The first subcategory of Term life is the level term. This is typically the yearly insurance and renewable at term. The terms are from the 5-year renewable term, 10-year term, 15-year term, 20-year term, 25-year term, and a 30-year term. The term is tied to a specific age that is normally 65 years.
Renewable Term Policies
Renewable Term policy is next in our list of the types of life insurance policy you can select from. It is a Term Life Insurance policy that has a yearly renewable term. This policy continues to operate up to a specified age. The premium is based on the policy holder’s age and health when they start the policy. And the Premium remains fixed throughout the term.
Return of Premium
In most types of Term insurance like that of auto insurance or homeowners insurance, if you have no claims during the term of the policy, it usually expires and you do not get any refund of the premium. Some Term life insurance holders feel this deal is unfair. Hence some insurance companies have introduced the term life insurance with “return of premium”.
Also, the premiums are usually higher than policies without it. But you must keep to terms of the policy or you lose the premium. And some policies return the principal premium and not the extra earned by the policy.
Whole or Permanent life insurance
Like I explained before, the Permanent life insurance policy is the type of Insurance you get to cover you for your whole life. Also, this whole life policy normally builds cash value over time. And permanent life insurance has three types of life insurance policies that you can choose from. Let us explore them now.
Whole life insurance
This type of permanent life insurance creates value upon a given set of schedules. And it offers a death benefit plus a savings account. Also, you know the exact cash worth or value of your policy at each year-end. But if you take a loan or withdraw any amount from your policy, the cash value and death benefit will reduce.
Universal life insurance
This policy offers you more flexibility than that of the whole life insurance. This policy earns a fixed interest rate or money market rate on the cash value of the policy. While the interest rate may change over time, it will never go lower than a guaranteed minimum rate.
Variable universal life insurance
The variable universal life insurance policy is in this list of types of life insurance policy that you can also take. This policy gives you the features of a variable insurance policy and that of universal life insurance.
This policy lets you invest your cash value in the stock market. Your policy value goes up or down depending on the stock market’s performance of your investments. The investment sub account options in VUL policies are not usually sold to the general public.
How do you choose a coverage amount?
First, note that for most people the Life Insurance benefits package given to you by your employer is only one or two times your salary. And this amount does not cover your needs.
Also as you analyze the types of life insurance policy, you should think of an amount of insurance that will completely cover the lifestyle you want your family to have when you are no longer around to cater to them.
Calculate your credit card debts, loans, the balance of your mortgage and estimate amounts for paying for college. Then arrive at an amount you want to leave for your beneficiaries and deduct all these from your current savings account balance. Learn more from this PDF worksheet.
In this post, we explored the various types of life insurance policy that are available. And, we also discussed the details of the major insurance policies like the Term and the Permanent or Whole Life Insurance. So, decide the kind of lifestyle you would like your loved ones to have when you are gone. Then, based on that and your capacity to provide for them, make the sacrifice.