The Types of Life Insurance: Your Options Explained

There are several reasons why you need to get life insurance. This guide covers the different types of life insurance policies.

Life insurance helps you protect your family’s financial health. Various types of life insurance offer hefty payouts after meeting certain conditions.

These payouts can help your beneficiaries cover debts and lower stress. Life insurance policies require premium payments in exchange for the long-term payout. Selecting the right policy can reduce your payouts and help you provide an optimal payout for loved ones.

We’ll cover the different types of life insurance policies. Knowing your life insurance options will help you make the best decision for your beneficiaries.

Whole Life Insurance

Whole life insurance ensures your beneficiaries receive a payout upon your death. You don’t have to worry about losing this policy as long as you make payments. 

The policy provides a guaranteed rate of return for your payout. Although the policy grows each year, it comes at a higher price than most policies.

Term Life Insurance

Term life insurance offers similar benefits as whole life insurance. Upon your death, your loved ones receive a payout from the insurance company. 

Term life insurance comes with lower premiums, but it’s not perfect. Term life insurance has an expiration date. You can buy this policy for 1-30 years, depending on your preference.

If the term life insurance policy expires, you’ll have to get a new policy. New policies often come with higher premiums due to inflation and increased age.

You can pick a lengthier time window to compensate, but you run the risk of outliving your policy.

Guaranteed Universal Life Insurance

This policy guarantees a payout at a set age that you establish. The policy comes with minimal cash value, making it cheaper than whole life insurance.

However, this advantage also creates a disadvantage. Missing a premium payment can cause you to lose the policy. You’d end up walking away with nothing.

Indexed Universal Life Insurance

Your insurance payout sits in an index fund for the policy’s lifetime. Index funds give your policy the chance to appreciate over time.

The stock market can also lose value. This scenario would depreciate your holdings. The stock market has historically rewarded long-term investors with some bumps in the road.

Insurance companies set caps that limit your gains and losses. These caps limit your gains but also protect you from considerable losses. 

Mortgage Insurance

Policies like mortgage insurance ask us to think about our expenses. Can your loved ones afford the mortgage if you die early? No one wants to think of this slim possibility, but it’s not an impossible fate.

Mortgages take up a high percentage of monthly budgets. A mortgage insurance policy can provide your loved ones with coverage in case the worst happens.

Mortgage insurance directly pays off or reduces your mortgage balance. Your loved ones then have two options. Some people will make lower monthly payments to increase their financial flexibility. Others can make the same monthly payments to pay off the debt faster.

Mortgage insurance lets your loved ones choose from those scenarios. Mortgage insurance is different from PMI, which is required for homeowners with less than 20% equity.

Burial Insurance

Funerals are getting expensive, with the average funeral costing thousands of dollars. You don’t want loved ones to stress about how they’ll cover burial costs. They could take out a personal loan or reach friends, but who wants their loved ones to resort to that?

A burial insurance policy covers funeral costs. Burial insurance is a more affordable life insurance policy. While funeral costs add up, they’re nowhere near the cost of a mortgage. 

Since burial insurance requires a relatively low payout, premiums are more manageable. Some loved ones will budget accordingly.

They may spend $8,000 of a policy’s $10,000 payout on funeral costs. In this scenario, your beneficiaries will pocket the extra $2,000.

Group Life Insurance

Many employers offer a group life insurance policy. Their employees get a basic life insurance policy for free. 

Applicants can review an employer’s benefits before applying for a job. This policy gives you free access to life insurance, but you can pay your way to a better policy.

Accidental Death And Dismemberment Insurance

You can add riders to existing insurance policies. Riders offer extra protections and payouts if circumstances get met. 

Accidental death and dismemberment insurance increases the premium if you die in an accident or get a serious injury. Some people work at dangerous jobs, which increases the likelihood of both scenarios.

This insurance policy gives your beneficiaries a higher payout to compensate for the death or injury.

Which Types Of Life Insurance Work For You?

Life insurance offers various advantages. However, you must consider how premium payments fit into your budget.

You can select lower coverage in exchange for lower expenses. This option makes it easier for you to afford life insurance. You don’t want to run the risk of losing your policy.

You should create a budget and consider future expenses before claiming a policy. Will you have to pay for college in the future or another expensive item?

You can select a lower payout to compensate for upcoming expenses. You can always buy an additional policy to raise your payout in the future.

Give Your Loved Ones The Protection They Deserve

Buyers can select from various types of life insurance. However, all policies come with the same promise. You can financially protect your loved ones as they learn to navigate the world without you.

You can’t be with them forever, but you can reduce their stress and give them time to grieve. 

If you want to learn more about life insurance and how it can help, continue reading this blog. It contains several resources to help you make optimal decisions for your finances.

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