When it comes to buying life insurance, one of the biggest mistakes you can make is buying the wrong type of policy. Of course, shopping for a policy can also be confusing with so many options available. There are two broad types of life insurance: term and whole life insurance. Whole life insurance also comes in several subcategories. There is no such thing as a life insurance policy that works best for everyone. If you’re interested in life insurance but don’t know where to start, you might need the help of a financial advisor. Jan Gleisner explains what you should know about the most common forms of life insurance.
Term Life Insurance
Term insurance is the most basic and affordable type of life insurance. As the name implies, the policy is only good for the specified term, which may be anywhere from 10 to 40 years, and it will only pay a benefit to beneficiaries if death occurs during the term. There are two main types of term life insurance: level term with a death benefit that remains the same for the entire policy and decreasing term, which means the death benefit decreases over time. Level term is by far the most common option. Term life insurance is far more affordable than whole life insurance, and it’s most popular with younger people who are more likely to need a high amount of coverage for a low cost.
Whole Life Insurance
Whole life insurance, also known as permanent life insurance, pays a death benefit to beneficiaries no matter how long the insured lives. Unlike term life insurance, a permanent policy will not expire as long as the premiums are paid. With traditional whole life coverage, the death benefit and premium remain the same for the entire life of the policy. Premiums for this type of policy can be very expensive, as the policy never expires. Whole life insurance, unlike term coverage, also has a built-in savings component as the policy builds cash value. You can borrow against your policy as it gains value.
Guaranteed Universal Life
Universal life is a type of permanent life insurance that allows for flexible premium payments and death benefit amounts. Within specific guidelines, you can decide how much of your premium will go toward your death benefit and how much will be allocated to the policy’s cash value. This cash value can be accessed with a loan.
Variable Universal Life
Variable life insurance is another common type of permanent life insurance with the cash value of the policy tied to an investment account, which introduces greater risk to the policy. There is the potential for a large gain in the policy’s cash value if investments are chosen wisely, but the policy does require hands-on management.
Survivorship Life Insurance
For a couple interested in life insurance coverage, a survivorship policy may be a good option. This type of life insurance insures two people on one policy. There are many ways to set up a survivorship policy, although the most common option is for the policy to pay out when the first person passes away. The policy can also be set up to pay out to beneficiaries when the second person passes away. Premiums for a survivorship policy are usually higher than a life insurance policy for one person, but they can be more affordable than buying two policies. A survivorship policy can be term or whole coverage.
To learn more about life insurance planning, contact Jan Gleisner, a trusted financial planner in San Diego.