Did you know that while 57% of Americans have life insurance coverage, only a third of these individuals have policies that adequately cover their families?
When buying life insurance, it’s essential to be aware of the different types of life insurance that exist. Different types of coverage involve different monthly fees and can have greatly varying outcomes when they are paid out.
Read on to find out everything you need to know about the different types of life insurance.
Term Life Insurance
To start with, term life insurance is offered in units of years. This could be 5, 10, or even 20-year terms.
It is often a cheaper way of buying life insurance as it will not necessarily last for the extent of your life. Annual renewable life insurance is a one-year policy that, like the name suggests, can be renewed every year.
The downside of term life insurance is that if you outlive the duration of your term life insurance, your family will not receive a payout.
Whole Life Insurance
Whole life insurance works in almost the opposite way to term life insurance. As long as you continue to pay the premiums, it will last until your death. This can be a more expensive form of insurance, but the cash value increases over time.
It is also possible to add paid-up additional life insurance to your whole life insurance policy. Additional premiums when you first take out the policy lead to greater returns after you die.
Universal Life Insurance
Next, universal life insurance is one of the cheaper forms of insurance. It offers a guaranteed death benefit but has a very low cash value.
It is generally considered to be an unwise investment strategy due to sizeable management charges and if you miss a single monthly payment, you have nothing to show for it.
Variable Life Insurance
Variable life insurance allows more control over your coverage. They borrow elements from mutual funds and savings accounts.
You can choose to invest your cash value in stocks and bonds, which each come with different levels of risk. The great level of control comes with greater responsibility. The insurance company isn’t liable for losses to the cash value that are a result of your stocks and bond choices.
Joint Life Insurance
Finally, joint life insurance is another popular option. This is a policy taken out by a couple. There are two main categories of joint life insurance: first-to-die and second-to-die.
First-to-die means that an equal payout is paid to the surviving partner. Meanwhile, second-to-die policies pass along the payout to the couple’s children after they are both deceased.
This latter policy isn’t recommended because the money is often greatly needed following the death of the first spouse.
Now You Know All About the Different Types of Life Insurance
We’ve now covered the main types of life insurance policies you can choose from. It’s important to get to know the different features of each one, so you can select the right policy for you.
If you found this article helpful, make sure you check out our other posts relating to money.