In response to the growing diversity and needs of those looking for coverage, life insurance providers now offer a wide range of products. This can be great for those who are familiar with the vast number of products, and options available, but overwhelming for the average consumer.
For those who have just begun to look at their available options, it can save you some significant time by becoming more familiar with the main types.
The most common, or purest form of life insurance coverage. Under this form of coverage, if you were to die your beneficiary receives your benefit. If the term expires, then you are not entitled to any of the money you have paid into your insurance. Available for periods that range from 1 to 30 years, this is your most cost effective option.
This type of policy, which can also be referred to as traditional or permanent, guarantees permanent coverage for your entire life. Unlike term life insurance, this type of coverage never expires. The premiums you pay are guaranteed throughout the life of the policy, but because you are guaranteed for your entire life, those premiums will be higher than those you would pay with term life insurance. Unique to whole life insurance is that a portion of your premiums accumulates into cash value. This cash value grows tax deferred over time, giving you the option to borrow against it in the form of a policy loan. Also, a whole life insurance policy can pay dividends meaning the cash value can actually grow beyond the guaranteed amount.
A variation on whole life insurance, universal life insurance differs in that you have flexibility with your premium payments. This flexibility is within the parameters of your initial policy and usually include a minimum or maximum amount to be paid, by within a certain time frame. The amount your pay will impact the growth of the cash value of your policy, and possibly your death benefits. This can be the ideal option for those with an uncertain financial future, as it has both coverage and a “built-in” savings component. Unique to this type of policy is that all aspects of the policy’s cost structure is revealed, including cost of insurance and expenses.
This specific type of insurance is intended solely to pay your mortgage in the event of your death. Some lenders require that you have a life insurance policy as a condition of your mortgage agreements. The alternative to this type of coverage is simply a term life insurance policy as it’s return never decreases. As you pay your mortgage off, the amount of your benefits decreases accordingly, compared to a term life insurance where your death benefits are guaranteed. For those that cannot afford the premiums of term life insurance, then mortgage life insurance can be a cost effective way to protect such an important investment.
Often an addition to your regular life insurance policy, this type of coverage’s pay-out is contingent on you becoming seriously ill, rather than dying. In the event you were to become critically ill, you would receive a lump sum payment. The types of illness that are covered by critical illness depend on the insurance company.