There are a wide variety of life insurance policies available today, the most basic being term insurance and permanent insurance. Within these two categories, however, there are several different types of policies to choose from. Familiarizing yourself with the differences can help you better customize the specific coverage to meet you and your family’s unique needs. Here are some guidelines to help you determine which is your best life insurance option.
Term Life Insurance
Term life insurance is the most basic type of life insurance, as it offers only death benefit protection and doesn’t build up cash value within the policy. Term life insurance is generally very affordable, especially if you are young and in good health at the time you apply for coverage. Coverage is purchased for a set length of time, such as ten, 15, 20, 25, 30 or more years. Many insurance carriers offer a 1-year renewable term option. The premium amount typically remains the same while the policy in force. Once the coverage expires, you will need to re-qualify for a new policy at your current heath status and age to continue coverage, generally at a much higher rate, however, some policies may offer the option to convert to a permanent life insurance plan. If your financial needs may change, you can purchase a “convertible” term policy, which allows you to convert it to permanent insurance coverage without a medical examination in exchange for a higher premium.
Permanent Life Insurance
Permanent life insurance offers death benefit protection as well as cash value. Unlike term life insurance, it doesn’t have a time limit and is intended to last for the remainder of the insured’s life, as long as the premium is paid. There are several different types of permanent life insurance:
- Whole Life Insurance – The most simple permanent life insurance coverage. The premium amount it set for the entire length of the policy, no matter your eventual age or health. The cash value component grows on a tax-deferred basis, can be withdrawn at will, and is only taxed when withdrawn. Some policies include tax-deferred dividends as well.
- Universal Life Insurance – More flexible than whole life, you can choose how much of your policy goes toward the death benefit and the policy’s cash value. Cash can be withdrawn for a variety of reasons, including debt payoff, retirement income or vacations.
- Variable and Variable Universal Life Insurance – Offer a variety of different options for investment, such as equities or mutual funds. They have the possibility of growing more quickly, but also can be more at risk depending on the movement of the market.
- Survivorship Life Insurance – Covers more than one person. With a “first to die” policy, the coverage pays out when the first person dies. “Last to die” policies pay out when the second covered person passes away. This coverage may be less expensive than separate policies, especially if one of the people is in good health.
- Final Expense Life Insurance – Also known as “burial insurance”, this coverage is typically purchased by seniors between the age of 50 and 85. This coverage ensures that your survivors aren’t burdened by costs related to your burial, such as headstone, flowers, and memorial services.
- No Medical Exam Life Insurance – Doesn’t require a medical examination during the underwriting process, but is generally more expensive.
Do you have questions about your life insurance needs? San Marcos Insurance Group is here to answer all your questions and point you in the right direction. Give us a call if you live in Chandler, AZ, and want more information about which life insurance policy will best serve you and your family’s needs best.