I remember when I first looked into getting life insurance to protect my family. I was so confused by all the choices. I didn’t understand most of it at all and felt dumb for not knowing. Later on, after becoming an insurance agent, I realized how normal I was and that most people don’t know or understand the various coverage options. You may have heard the various terms and even know what a few of them are, but let me take a moment to break them down for you in very simple terms. I will give you an overview that will help you either understand what you currently have or what is the right choice for you as you are looking at your options.
Term Life
This is the most affordable type of coverage offering the best “bang for your buck.” It is the lowest rate for the highest coverage amount. This sounds great! What’s the catch? There’s no catch, but there are some limitations to it to consider. The biggest one is that it is temporary coverage. It is for a set “Term,” hence the name. It is usually for a term of 10, 15, 20, 25, or 30 years. During that term, the premium and coverage amount are level and do not change. At the end of the term, the policy expires and is no longer in place.
This option is frequently the best choice to protect the family during working years when income is higher and job-based, bills are higher, kids are still being raised, a mortgage is still being paid, etc… In these years, you need higher coverage amounts, but not forever. Once you get older, the kids are gone, the house is paid, retirement income is in place, the need for high coverage amounts is greatly reduced in many cases and a need for a permanent policy is needed. We will talk about that in a moment.
Cash Back or Return of Premium Term Life
This is a great option for many people who want a term policy with a great benefit at the end of the term. Instead of the policy simply expiring at the end of the term, the policy owner will be refunded every penny they have paid over the life of the policy so long as they are still alive. Depending on the policy amount, term, etc… this can often be a very large check issued at the end of the term. Many will use this return of premium to pay off their home early or as investment capital towards retirement. It will cost a little more each month than a simple term, but ultimately ends up being “free.”
Whole Life
This is permanent coverage. It will never expire like term coverage. Because the insurance company will absolutely have to pay out on this policy at some point, it will always be more expensive than term coverage, but as the insured, you will never have to worry about outliving your coverage. It will be there when your family needs it. This is usually the best choice for those a bit older, with lower coverage needs and permanent needs. Whole life policies also provide cash value and can usually be borrowed against if desired.
Final Expense
This is a whole life policy that is specifically focused on coverage amounts for final expenses. Coverages will range from $5,000 to $40,000 and as a whole life policy, will be permanent. The premium and coverage amount is fixed and will not change.
Universal Life
Universal life policies are a combination of life insurance and investment account. There are many different types, such as Indexed, Fixed, and Variable. They each offer various pros and cons in relation to risk, potential earnings, tax advantages, cash value, and death benefits. This is a great option for those looking for coverage, savings, cash value, and an investment vehicle all in one. There are so many variables and options, that it is far too much to go much further in-depth in this blog.
