Types of life insurance policies
People looking for a life insurance policy can choose a permanent policy or a temporary policy.
Term life insurance: A term life insurance policy provides life insurance coverage for a specific period of time, typically 10 to 30 years. People who purchase a term policy pay monthly premiums for coverage. Beneficiaries of insured persons who died during this period receive the death benefit.
Term life policies can be renewable or later converted to permanent life. If the policyholder is still alive at the end of the term, some life insurers give their policyholders the cash value of the term life insurance policy when the term is over. Term life insurance coverage tends to have lower premium rates than permanent policies because it is only temporary.
Whole life insurance: Whole life insurance provides life insurance for the life of an individual. The monthly cost is higher and does not change over time. Individuals can choose to invest additional money in the account to increase its value. The value of the policy also increases in a tax-deferred account. Beneficiaries receive at least the current value of the policy.
Universal life insurance: Like whole life insurance, universal life insurance also provides coverage for an individual’s entire life, and payments are an investment. Insurance premiums, monthly payments, go into a tax-deferred account and increase with interest. However, a universal life policy also provides individuals with more flexibility in determining the amount of coverage they buy and setting payment schedules.
Variable life insurance: Variable life insurance is similar to universal life in that it is permanent life insurance that gives policyholders flexibility with their monthly premiums. Variable universal life insurance differs in that it allows policyholders to invest their life insurance funds in separate accounts with different options for buying stocks and bonds.
Insurance of final expenses: Insurance for final expenses is also called burial, cremation and funeral insurance. This type of life insurance has a lower death benefit because it only covers funeral expenses and other last expenses. Because the benefit amount is smaller, life insurance rates are more affordable. This is the best life insurance for seniors who do not have a permanent life insurance policy or who are not eligible for a temporary policy. Purchasing a final life insurance policy can help protect the financial stability of friends and family who take care of your last business.
Life insurance riders or additional coverage options
Accelerated death benefit: The policyholder can receive part or all of the death benefit from their contract if the insured is terminally ill.
Accidental death benefit: If the insured person dies in an accident, the insurance company will provide additional money to the beneficiaries in addition to the death benefit.
Add to the cash value: This option allows beneficiaries of the contract to receive the cumulative cash value of the contract in addition to the death benefit. This option is only available with permanent life insurance policies.
Additional death benefit: Similar to the accidental death endorsement, if the insured dies in certain circumstances described in the policy, beneficiaries can receive additional money to the death benefit.
Additional purchase option: This option allows the policyholder to take out more insurance at a later date.
Child term: Parents can add their children to their own insurance policies to extend their insurance coverage to their children. It’s a way to get life insurance for kids. It doesn't matter if the children are stepchildren, adopted or born to you.
Disability income: If the policyholder becomes disabled, the insurance company will grant him a monthly allowance.
Exclusion runner: This limits the execution of the policy in specific circumstances. These are more common in health insurance but can be part of a life insurance policy.
Long-term care insurance: This endorsement can help defray the high cost of home visits or long-term care in an institution. Long-term care insurance can also be purchased alone.
Paid additions: When a permanent life insurance policy acquires a cash value over time, policyholders can choose to use the accumulated value to add coverage or a cash value to a policy using dividends. Additional coverages are called paid supplements.
Renewable term: This clause allows you to renew a term life insurance policy for a certain period without having to be reassessed by the insurance company.
Term conversion: This allows individuals to convert their term life insurance into a permanent life insurance policy at the end of the term.
Term insurance: This option can be attached to a permanent insurance policy and offers more insurance coverage for a specific period of time.
Premium waiver: If policyholders become disabled, they are no longer required to make monthly payments to maintain their life insurance policy.
Other useful life insurance conditions
Beneficiary: A beneficiary is the person who receives the death benefit when the insured person dies. Insured persons must name at least two beneficiaries in the event that they survive one of them.
Death benefit: The amount of money that the insurance company pays to beneficiaries when the insured person dies. Death benefits are not taxed through income tax.
Released status: This is when a permanent life insurance policy has accumulated enough monetary value to allow the policyholder to stop making payments for a period of time or to add paid additions.
Political endorsement: Additional coverage that is part of a life insurance policy.
Premium: Monthly payment of a life insurance policy.
Subscriber: Insurers assess insurance requests. They assess the risk and the cost at which the company is prepared to assume the risk.
Choosing a life insurance policy
When you think about life insurance, you have to consider your financial obligations.
- What debt are you in?
- Are you married or in a committed relationship?
- Do you have dependents?
- Could your savings pay for the funeral expenses?
- How would losing your income affect your family?
Life insurance is particularly important for young and middle-aged people because they generally have more financial obligations that may not be met in the event of death. It is also less expensive to purchase life insurance at a younger age than at an older age. When choosing a life insurance policy, think about what you need and may want in the future.
For example, if you are single, you may simply need an insurance policy that will help cover your debts and funeral expenses. Depending on how you think you can age or how you want to retire, you may also want a plan that offers flexibility by adding disability and long-term care insurance.
If you are married and want to have children, you may want a policy that offers the option of adding your children to your life insurance plan just in case. Coverage is generally available for children 15 days to 18 years of age. Even with health insurance, medical bills can be a sudden and crippling expense.
Life insurance providers allow people to buy life insurance policies for others. Parents can purchase life insurance for their children. If you are a dependent, you can insure their life and be the beneficiary of this policy. This can help secure your finances.
Need help? Learn more about the best life insurance tips, the worst life insurance tips, and choosing the right life insurance policy for you.
Choosing a Life Insurance Company
When choosing a life insurance company, there are several things to consider. Life insurance companies have different plans and rates. Make sure the company you choose has the right combination of life insurance and coverages to meet your coverage needs.
Before an insurance application is approved, the life insurer takes out the policy. The subscription process takes into account age, gender, work, health, etc. to determine the claimant's insurability and the rates of life insurance for which he is eligible. For example, tobacco users generally pay a higher premium than people who do not smoke or who have quit smoking.
The application process may vary slightly from a life insurer to a life insurer. Many life insurance companies require applicants to undergo a medical examination as part of the underwriting process. The medical examination is used to determine an applicant's insurance risk. Certain health problems can affect the cost of paying premiums. In some cases, it is sufficient to complete a medical questionnaire for the subscription.
For more information on premium costs and underwriting, read “Why is my premium so high ?: What you need to know about purchasing life insurance.”
Some insurance policies do not require a medical examination. These policies are sometimes called no-exam or guaranteed issue life insurance policies. They tend to have higher life insurance premiums but can save some people money.
Call a few life insurance agents to get life insurance quotes or work with an independent insurance agent. Independent agents can research quotes for you and help you assess your options. Their knowledge and experience in the industry is of particular benefit to customers with certain medical conditions.
Compare life insurance products, rates and plans to make sure you're spending your money the best way. Some companies may reject your request, so leave your options open.
You will also need excellent customer service and knowledgeable agents to help you understand your policy and options before purchasing a policy. Some people use independent insurance agents or advisers to help them find the best business and the best policy for themselves. Independent insurance advisers are especially helpful for people who may be difficult to insure due to their age or health problems.
Before purchasing a life insurance policy, you will also want to take a look at the history of the claims insurance company, its ethical standards and customer service. These are good indicators of the likelihood that they will meet their claims obligations. If a company is the subject of legal proceedings, either for non-compliance with claims, or for ethical problems, you will probably want to avoid this insurer because it may not be trustworthy.
You will want to examine the financial strength and health rating of the business. Companies with high financial strength ratings post them on the company's website. Choose a life insurance company that has a high financial rating from A.M. Best, Standard and Poor’s (S&P), Moody’s or A.M. Fitch. These are the main financial rating agencies.
You don't want your family to be in a situation where they make a claim and the business doesn't pay because it doesn't. You can find this information by viewing consumer life insurance reviews, complaints and third-party reviews.
Find out how BestCompany.com evaluates life insurance companies.
Deciding which type of policy to buy, comparing quotes, working with an independent life insurance agent, and finding companies will help you find the best life insurance company for you.
See the best life insurance companies