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Breaking Down the 3 Main Types of Life Insurance

Life insurance is an important asset to protect your family. According to recent statistics, approximately 52 percent of Americans have some form of life insurance coverage.

Whether you currently have this type of insurance or you’re thinking of changing your policy, it’s important to know which options are available to you.

Read on for a list of the three main types of life insurance so you can decide which choice is right for you.

  1. Term Life Insurance

A term life insurance policy is a popular choice for many policy holders mostly due to its affordable rates. Term life insurance provides a financial safety net for your family and lasts as long as the selected term, normally between ten and thirty years.

This form of life insurance is good for a predetermined number of years before it expires. You will pay a fixed monthly fee toward your policy. If you die during an active term, and the policy is still in force and hasn’t lapsed, the insurance company pays a set “death benefit” to your beneficiaries tax-free.  This means the benefit amount that you choose is the amount on the check sent to your loved ones.  There aren’t hidden fees, penalties, or taxes taken away from what you originally choose.

The death benefit may be paid as a lump sum or as an annuity, but most people prefer the lump sum to avoid taxes. This life insurance plan is popular because it typically costs less than some other options.

It’s important to note that your term does have an expiration date, so it doesn’t last for life; however, if you need affordable life insurance for a set amount of time or specific expense like a mortgage, term life insurance is a great choice.

  1. Whole Life Insurance

Whole life insurance is permanent, which means that your policy lasts for life as long as there aren’t payment lapses. Unlike term life insurance, a whole life plan doesn’t have an end date, unless you plan on living past 130 years old!

Many people prefer this type of life insurance because of its longevity and the peace of mind it provides. It also has a cash value that can earn interest over time, making it a smart investment.

Part of your whole life insurance premium goes toward the cost of the policy, and the rest goes toward a separate “cash value” account. This insurance can cover estate plans or an endowment, too.

Since whole life insurance lasts for life, you can use it to help dependents like a spouse or child with long-term disabilities. While this life insurance is a popular choice, it also costs more than term life insurance.  Consult with your agent to find the best plan for your financial situation.

Plan to pay significantly more for this type of coverage. It’s also more complex due to the taxes, interest, fees, and other fine print. This is why consulting with a professional licensed life agent is critical to getting you a great whole life policy that provides true peace of mind about your family’s future.

  1. Universal Life Insurance

Universal life insurance is also a permanent plan, but it’s much more flexible than a whole life insurance plan. You can decrease or increase the amount that you pay toward your premiums.

If you lower the premium amount, the difference is taken from the cash value of the policy. If you need something flexible, universal life insurance can a smart choice.

These policies let you adjust the death benefit and premium based on your individual needs. One benefit is that if you want to lower your premium costs, you can use the cash value the policy has accumulated to cover it by taking a loan out on your own life policy.  Be aware there is interest charged when taking a loan out on the cash value of a life policy.

It’s important to note that any interest you earn from the cash value relies on current market performance. This makes universal life insurance a higher risk than other plans as it is dependent on market performance.

If you want to build a nest egg and need flexibility, then a universal life insurance plan is a great option. If you’re unsure which plan is best for you, talk to an insurance professional for guidance.

Do I Need Life Insurance?

You might ask yourself, “do I need life insurance”, but a better question might be, “how can I truly afford to NOT have life insurance”?  If you have children, family, people that depend on you, pets, or even a charitable cause you’re passionate about, then life insurance is one of the most important purchases you can make.

The purpose of life insurance is to help cover financial obligations for your dependents in the event of your death. If you have a spouse and/or children, then life insurance will protect them financially.

For example, if you have a mortgage, a life insurance plan will help your dependents cover the costs of continuing to pay bills in your absence. It can also help to pay for other expenses such as transportation, utilities, and groceries.

People tend to buy life insurance after a major milestone like having kids, buying a home, or when they get married. Families with children can benefit from life insurance if one or both parents die. Many new parents enroll in a life insurance plan to protect their children, as most infants are eligible for their own life insurance policy at only fifteen days old.  At this point, their rates will be the lowest they’ll see in their whole lives!

Other examples of people who may benefit from life insurance include people with aging family members or those with disabilities. The payout may cover costs like medical care that you’d normally pay for out of pocket.  For example, the average funeral cost in the United States is over $8,000 and end-of-life care for the average U.S. citizen is almost $14,000.  Life insurance can help subsidize, or even outright cover these expenses, taking the burden of payment off your loved ones.

How Life Insurance Helps You

Aside from your spouse or kids, life insurance is helpful for other purposes, too. If you’re a business owner, your plan could help business partners pay for costs like estate taxes or hiring your replacement.

Families with one stay-at-home parent can also benefit. If the breadwinner dies, the spouse will be able to care for the children while having some form of income.  You can even set your life policy up to cover education costs so your spouse could re-enter the workforce if they wanted or needed to.

Life insurance isn’t just for aging adults, either. Young people who want to plan early can also benefit by enrolling so they can start saving for the future.  Younger people tend to be healthier, statistically, so their rates tend to be lower compared to older people living similar lifestyles.

Senior adults may use their life insurance to cover funeral costs. It can help to enhance and supplement estate planning as well.  Life insurance is a great way to pay for end-of-life costs as well, such as paying for expenses at a senior living facility.  Talk to your agent today and find the best fit for you and your family.

Choose the Best Life Insurance Plan

Consider these types of life insurance when you’re shopping for the best plan. Depending on your age and other factors, you’ll want to ensure that you enroll in the right coverage to meet your needs.  The sooner you find the right coverage, the sooner you and your family can find that peace of mind.

To learn more about life insurance or to get a quote, contact Hinkle Insurance Agency today.