The purpose of life insurance is to provide support for your family when you are no longer able to do so. Before you select a plan, it’s best to learn about the different types of life insurance coverages available and understand their unique benefits.
Common Types of Life Insurance
Term life insurance
As the more affordable plan, term life has limits in terms of benefits. Your family will receive a payout upon your death during a covered term of typically 5 to 20 years. It may pay for funeral costs and outstanding debts. This plan is better than no plan, but it doesn’t pay you personally, whereas whole life insurance does so. The cost of term life insurance coverage increases as you grow older.
Whole life insurance
This plan covers you for your entire life and provides access to cash when you need it. A whole life plan pays interest as your cash accumulates over time. It not only pays your family benefits upon your death, but it also provides value to you while you’re alive. Since it’s an asset, you can borrow against its value. It can also pay you when you are unable to work.
Life Insurance for Different Stages of Life
- Best for single adults on a budget: Term life insurance – It can pay for funeral expenses and pay off loans upon your death.
- Best for young families: Whole life insurance – It provides emergency funds if you suffer from an unforeseen disaster.
- Best for investing in your child’s future: Whole life insurance – It can pay for your children’s college costs after your death.
- Best for older adults: Guaranteed issue life insurance – You may not need expensive life insurance after your kids grow up and move out. This policy is sufficient for covering funeral costs, although it’s a bit more expensive.
Other Types of Life Insurance You Can Consider
There are other less common types of life insurance to consider if neither term life nor whole life works for your situation. These include variable life, universal life, and variable universal life.
- Variable life insurance includes a death benefit based on stock market investments. Market fluctuations affect the payout, as the account value grows from both premium payments and interest.
- Universal life insurance provides more flexibility because it allows you to adjust premium payment levels and deadlines. It provides an adjustable death benefit, and cash is built from a combination of premium payments and interest.
- Variable universal life insurance is a combination of variable and universal life insurance. It’s variable because the value is based on investments that change day to day. It’s universal because it allows a degree of flexibility.
How to Make the Most of a Life Insurance Policy?
A life insurance policy is most helpful when you have loved ones who depend on you for financial support. For some families, life insurance is a good investment that helps provide smooth financial continuity from one generation to the next.