What Are the Different Types of Life Insurance?

What’s the one thing that unsettles you about death?

If you’re anything like most people who have families, you no doubt worry about the welfare of the people you’ll leave behind. Especially, if you have people who depend on you for financial support, your death can leave them in a terrible state.

Thankfully, there are steps you can take to help safeguard the economic well-being of your dependents. One of those is to purchase life insurance.

In this article, we’re exploring the different types of life insurance, so that you have a clear understanding of the options that are available to you.

What Is Life Insurance?

First things first, you need to understand what life insurance is. This is a type of insurance policy that pays death benefits to beneficiaries once the policyholder passes on. To keep the policy active, the policyholder must pay the premiums as required.

There are different types of life insurance, each designed to meet a specific need.

Term Life Insurance

Term life insurance provides coverage for a specific period of time, hence the word “term.â€

Most term life insurance policies are straightforward. You purchase term life insurance for 15 years, for example, the policy will provide coverage for this amount of time. If you die within 15 years, your beneficiaries will receive your death benefits. But if you don’t die in this period, the policy will expire.

However, some life insurance companies offer the option to extend the policy or convert it into another type of policy, so that you don’t lose coverage. Some companies also have a cash-back option, whereby the policyholder receives a certain percentage of the paid premiums once the policy expires.

Permanent Life Insurance

Permanent life insurance, unlike term life insurance, lasts through the entire life of the policyholder. In other words, you will pay premiums until you pass on, in order to keep the policy active.

With this type of life insurance, you won’t worry about getting a new policy should your term life insurance policy expire. Also, permanent life insurance has a cash value component, which is like a savings account. A percentage of your premiums will go to this cash value, and you can borrow against it in your lifetime.

There are different types of permanent life insurance. The most common ones include:

Whole Life Insurance

Whole life insurance is a classic type of permanent life insurance. It lasts throughout the policyholder’s lifetime, and has a cash value component.

Some whole life insurance policies also include burial expense benefits. Read here to learn more about burial insurance.

Universal Life Insurance

Universal life insurance is a lot like whole life insurance, only that it doesn’t have a cash value component. The premiums stay fixed just like in whole life insurance.

There are also other forms of universal life insurance, such as guaranteed universal life insurance and indexed universal life insurance.

Understand the Different Types of Life Insurance

Life insurance is a must-have if you have dependents. Even if you don’t have them right now, it’s still worth buying, since you can add new beneficiaries to your policy in the future. And now that you understand the different types of life insurance, you’re able to choose the right one for you.

Explore our blog for more insurance tips and advice.