Did you know that just over half of all Americans are covered by life insurance? Though these policies can be a critical way to help protect our loved ones upon our death, many people forgo a policy.
Anxieties about discussing death and mistaken beliefs that insurance is too expensive are among the most common reasons why. In addition, many people grow confused over the plethora of policy types!
It’s true that there are many types of life insurance policies available, but it’s also worth noting that they fall into a few simple categories. If you’re struggling to choose a policy to protect your family, here’s what you should know before diving in.
Term vs Permanent Life Insurance
There are two main types of policies available, each with their own advantages and disadvantages:
Term Life Insurance
Term life policies will last for a fixed number of years—often ranging from 5 to 30 years—before expiring. With most life insurance policies, these tend to be the least expensive type of policy available.
As long as you pay your premiums each month, the life insurance company will pay out your death benefit to your beneficiary of choice. If you don’t die within the set time frame, your policy will expire without a payout.
Permanent Life Insurance
As their name suggests, permanent life insurance policies will last your entire lifetime, meaning that your beneficiaries are guaranteed a payout upon your death as long as you keep up with your premiums. They tend to have a cash value component that you can borrow against, which can make them a helpful financial management tool.
Types of Permanent Life Insurance Policies
While term life insurance policies tend to be similar, permanent policies vary wildly. Here are a few of the most popular types:
- Whole life insurance: these permanent policies have fixed premiums and death benefits, and you’ll build the cash value component as you pay toward the policy
- Universal life insurance: these policies vary, but they tend to offer fewer guarantees than whole life insurance, and some options will also offer flexible premiums and death benefits
- Variable life insurance: with these policies, the cash value component is tied to investments, which can give you opportunities for significant gains—or significant losses
The best life insurance companies will offer all of the policies above. This also includes more granular options like burial insurance, which is a type of whole life insurance policy. As with any major decision, it helps to shop around for the option that suits your needs: for easy comparison, go here to learn more.
Consider These Types of Life Insurance
Though sifting through a huge range of insurance providers and types of life insurance can feel overwhelming, understanding the basics can remove some stress from the equation. Once you’ve taken time to consider what broad category of policy you’d like to take out, it’s easier to iron out the details. Don’t hesitate to reach out to insurance companies in your area for quotes as you start comparing!
Need more insights to help you make the most of your next big decision? Be sure to check out our other content for additional advice.
