In a previous blog post, we mentioned how important it is to include life insurance as part of your estate plan, especially if you have children. There are many different types of life insurance policies to choose from, depending on your needs and finances. The following is a general overview of the most popular types of life insurance policies.
Term Life Insurance
Term life insurance is typically the most affordable type of policy. It’s also the simplest to understand. It covers you for a certain amount, over a specific number of years (or “term”), and for a set annual premium. For instance, you may have a $500,000 life insurance policy for a term of 30 years with an annual premium of $500. As long as you continue to pay your annual premium, your policy will remain active. After 30 years, the policy simply ends and no longer covers you.
Permanent Life Insurance
If you don’t like the fact that term life insurance simply ends, then permanent life insurance may be a better fit. There are different variations of permanent life insurance, but essentially, it continues to cover you for the rest of your life as long as you pay the premium each year. Many also build cash value over time, which you can withdraw from while you are still living. Some also pay out dividends.
The following are different types of life insurance policies that are considered permanent life insurance:
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
- Variable Universal Life Insurance
- Final Expense Life Insurance Coverage
This type of life insurance is often purchased by those over age 50. It primarily covers burial expenses, the costs of which can be quite high these days. The value of the policy is much less than the other options noted above and the cost is less as well. Lastly, the requirements are also not as strict.
Which Types of Life Insurance Policies Are Best for You?
When selecting a policy, there are several different things to consider. First, what is your goal? Are you looking to pay off debts, provide financial support to dependents, or simply cover funeral expenses. Secondly, how long are you looking to cover yourself? How much coverage are you looking to obtain? And for what period of time? Keep in mind that the older you get, the more life insurance will cost you. Therefore, it’s best to buy a policy while you are still young. Additionally, many life insurance companies require a health exam to determine your level of risk. Both age and health contribute to the cost of your policy.
Since life insurance is an important element of your estate plan, it can be helpful to consult with an estate planning attorney first. Your attorney can help you determine how much life insurance you need and how to best to incorporate it into your overall plan. You may also consult with a life insurance specialist for more details on the different types of life insurance policies, their pros and cons, pricing, and more.