This is
the right life insurance for you
To meet the diverse demands of people, there are various types of life
insurance. Learn what is appropriate for you.
There are many types of life insurance policies that can help protect your family, and they all fall into two main categories: term and permanent.
With a
term life policy, you get coverage for a defined length of time (say, 10
years). If you die during that time, money is paid to your beneficiaries – but
when the term is over, you must get new coverage or go without.
Permanent
life insurance (i.e., whole life and universal life) provides life-long
coverage with a “cash value” component that can help with many objectives, like
helping to build your retirement nest egg while providing protection for life
and other financial benefits along the way. Here are some things you should be
aware of to assist you in deciding which form of protection will be most
effective for you:
- The basic features of a life
insurance policy
- The different kinds of
policies you can buy
- How to take the next step
What are the basic features of a
life insurance policy?
A life
insurance policy is fundamentally a pledge to safeguard your loved ones
financially in the event of your passing. A policy's implementation of that
promise is determined by a few crucial characteristics.:
- The death benefit: the sum of money the
insurance provider will pay in the event that the covered person passes
away. Usually, this bonus is exempt from income taxes.
- The beneficiaries: The individual(s) or
individuals who receive the death benefit. It may be distributed
proportionately among a few people or it may entirely go to one person
(such as the surviving spouse) (e.g., a spouse could get 50 percent , and
two adult children could each get 25 percent ). By the way, you can choose
to give all or a portion of your death benefit to an organization, such a
nonprofit purpose, instead of a blood relative or even a specific
individual.
- The policy length or term: the time frame during which
the insurance company will pay a death benefit. A term policy defines it
as a certain period of time, such as 10, 20, or 30 years. A permanent
insurance lasts for the duration of the insured's life; for whole life, it
continues as long as premiums are paid; and for universal life, it
continues as long as it is adequately funded to cover monthly outlays.
- The premium - The regular monthly or
yearly payments required to maintain the policy.
- The cash value - the investment portion of
the policy that can be withdrawn as cash or used as collateral for loans. 1,
2 Term life insurance has no cash value.
The different types of life
insurance policies and their key features
Term life insurance
A term life policy is precisely what the name
suggests: coverage for a predetermined period of time, usually 10 to 30 years.
Because there is no cash value to the policy, unlike whole life insurance, it
is also referred to as "pure life insurance." Its primary purpose is
to pay out to your beneficiaries in the event that you pass away during the
term.
The
majority of individual term insurance have level premiums, which means that you
pay the same sum each month. When the term expires, there is no longer any
coverage; you must either eschew insurance altogether or get a new policy,
which will probably be more expensive given your advancing age. You can convert
a term policy to permanent life insurance for all or a portion of the coverage
period with many carriers, including Guardian. Prices for term life insurance
that you obtain via your company are frequently offered "on reached
age," which indicates that the rates will rise with time.
You can use this calculator to estimate the cost of
term life insurance at the desired level of protection. How long will your
family require financial security? For the majority of people, this period
lasts until the children are adults, the house is paid off, and the surviving
spouse has access to some savings.
Whole life insurance
A whole life policy is the most straightforward
type of life insurance that lasts your entire life. It has a monetary value
element, just like other permanent policies: You don't pay taxes on the gains
since a portion of your premium money is invested in a cash value account,
where it appreciates over time tax-deferred.
A whole
life policy differs from other permanent insurance options in three key ways:
- The death benefit is guaranteed as long as the assured premiums are paid
- The level premium stays the same for life
- The
insurance plan includes guaranteed cash values that increase at a certain rate.
You can benefit significantly from cash value in
various ways while you're still alive. It takes some time for it to develop to
a sizeable sum, but once it does, you can borrow money against it, use it to
supplement your insurance payments, or even cash it in for cash to live on in
retirement. 5
Your cash value may also be able to generate annual
dividends6 when you purchase a whole life insurance policy from a mutual firm
like Guardian. You receive a percentage of the insurer's earnings, which may be
used to raise the policy's value and offer further benefits. Guardian has paid
a payout to qualified whole life policyholders each year since 1868, albeit it
is not guaranteed.
Whole Life vs. Term Life Insurance
Key
differences between term and whole life insurance include:
- The policy length: While a term policy only
offers coverage for a specific number of years, a whole life policy covers
you for the rest of your life. Your beneficiaries won't be eligible for a
death benefit once the period expires.
- The cash value: Once a term insurance
policy expires, it is worthless. A whole life insurance policy is a
permanent asset that can be used to support monetary objectives both
before and after retirement.
- The
premium: With
whole life insurance, you may be sure that your beneficiaries will get a
death benefit at some point for a set death benefit, such as $100,000.
Universal life insurance
A universal life policy is Another type of
permanent insurance that provides whole life's lifetime coverage and cash value
advantages. However, there is a key distinction from whole life: the premiums
are variable.
With a
universal policy, you are free to alter the premium you pay as you see fit, as
long as you stay within the policy's parameters. If you pay less now, you might
potentially have to pay more in future years in order to maintain your
coverage. While offering the same level of cash value growth as whole life
insurance, this form of policy can adapt to your own circumstances. A
combination of factors, such as having a second kid, changing careers, or
taking out a loan to own a business, could affect your credit score. A balance
of stability and flexibility may be necessary in situations like having another
kid, changing jobs, or borrowing money to buy a business.
Final
expense insurance
A type of
life insurance called final expense insurance is only meant to pay for expenses
related to the passing of a person, like funeral and burial charges. Although
there is no cash value or investment component to these policies, the coverage
is permanent in the sense that it will continue to be in effect as long as you
continue to pay your premiums. Due to the fact that it helps to protect loved
ones who might otherwise have to pay these expenditures out of pocket, older
adults frequently purchase final expense coverage without dependent children.
While the premiums for these policies typically aren't extravagant, the death
benefit is also rather little and isn't intended to support your beneficiaries
financially for many years. A whole life, universal life, or term life
insurance policy will probably be more advantageous for younger, healthier
individuals who desire to accumulate cash value or a sizeable death benefit for
their relatives.
Simplified
issue and guaranteed issue insurance
As part
of the application procedure, they want a medical checkup so that the insurance
company can evaluate your risk of needing to insure you. Medical exams are not
needed for simplified issue or guaranteed issue insurance. These programs are
particularly made for candidates who are older or have major health issues and
may not be eligible for policies that call for a medical exam.
Most last expense plans and some term policies have
either a simplified issue option or a guaranteed issue option. In lieu of an
examination, you will be required to complete a health questionnaire when
applying for a simple issue policy. You won't be required to take a medical
exam or fill out a questionnaire in order to be approved for coverage with a
guaranteed issue policy. Due to the higher premiums and lesser coverage levels
offered by these plans when compared to other types, the insurance provider
must assume a bigger risk while offering coverage.
Group life insurance
This is life insurance that you buy as part of a group – Usually
through your place of employment as part of your benefits package, or through a
member group. The majority of group life insurance policies are term, however
some businesses also provide permanent insurance as a supplemental
(employee-paid) benefit.
Individual
plans, purchased through agents or straight from insurance companies, used to
be the most popular type of life insurance. More Americans now have access to
employment-based group insurance. Because the business or organization is
essentially "purchasing in bulk," these insurance policies have
comparatively low premium costs. Some businesses will even cover the cost of
the employee's term insurance up to one time their salary. Group policies might
also be made easier to understand, at least for lesser coverage amounts, making
it easier for workers with health difficulties to get insurance. The amount of
coverage, however, may be constrained.
Although
group life may not offer the comprehensive coverage you desire, it can be a
quick and inexpensive option to start or add to your life insurance coverage.
Check to see if the insurance is transferrable, which means you can take your
coverage with you if you change jobs.
How to take the next step
No matter
what form of coverage you purchase, be sure to do it from a seasoned,
financially sound insurer. After all, one of the major advantages of having
life insurance is that it contributes to bringing some degree of certainty in a
world where there is none. Ratings of a company's financial strength are an
objective way to ensure that it will be around for your family for many years
to come. Choose a business that has been rated at least "Superior"
(A+) by A.M. Best, the top rating organization for the insurance sector
(Guardian is A++). 7, 8
After learning the fundamentals,
it's time to consult with a professional who can advise you on the most
suitable type of life insurance. That will depend on your age, financial
situation, family situation, and a variety of other factors, as you might
expect. A broker or financial expert may assist you in choosing the right form
of policy, tailoring it to your needs, and exploring your options in the event
that term, whole life, or universal life insurance is not the best option. If
you don't have somebody with whom to talk insurance, Guardian can assist you in
learning more about purchasing life insurance or even in locating a local
financial expert who will pay attention to your needs and assist you in making
the right decision the right solution.
Frequently asked questions about types of life
insurance
What is permanent life insurance?
Unlike
term life insurance, which only provides coverage for a specific amount of
time, permanent life insurance provides coverage for the rest of your life. Two
forms of permanent life insurance that can cover you indefinitely and build up
a cash value are whole life insurance and universal life insurance.
What is cash value life insurance?
A
perpetual life insurance policy with a cash value that can be obtained at any
moment throughout your lifetime is called cash value life insurance. Examples
of cash value insurance include whole life and universal life insurance.
What is variable universal life insurance?
Variable life insurance is permanent insurance like
universal life insurance that enables you to vary your premium to reflect
changes in your income or expenses. The cash value of the insurance is invested
in underlying subaccounts and is subject to change depending on how well those
underlying assets perform. Due to this adaptability and variety, you should
regularly examine your policy to prevent a policy lapse, particularly when
market conditions change.
What is group life insurance?
Group life insurance is a type of life insurance that you purchase via your company, typically at a discounted rate. You can purchase a personal life insurance policy if your employer doesn't provide it.
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