Life insurance is necessary for most people, but it can be very confusing to shop for. There are so many different options and types of policies, and at the same time, most insurance is sold by high-pressure salesmen. As a result, you may not truly know the best option to suit your need. Here is a quick breakdown on the main types of life insurance.
Term Life Insurance
One of the most common, and most popular types of insurance, is term life insurance. The reason for both the popularity and commonness of this type of insurance is because it is the simplest form of life insurance.
Term life insurance provides a set amount of insurance for a specific period of time – usually 10 to 30 years. When you buy term life insurance, you focus on three main things:
- The Death Benefit: This is the amount of money that is paid out upon death
- The Length of Coverage, or Term: This is how long the policy is good for
- The Premium: How much you will pay each month or year for the insurance
Term insurance is good for someone who only plans on needing coverage for a set period of time, such as while children are in school.
Whole Life Insurance
The other big type of insurance is whole life insurance, which is a product that combines a life insurance policy with a cash value amount. This policy is also designed to provide a lifetime of coverage, not just a set period of time. Many financial planners also tout this option because of the cash value portion. When it comes to this, there are a lot of different variations, but in the end, it is designed to provide some tax free savings along with insurance.
A common variation is universal life insurance, which combines the same permanent life insurance as whole life, with an investment type vehicle instead of a savings account. The idea is to be able to earn higher returns than just saving, while still providing the insurance value.