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Can you name several kinds of life insurance right off the top of your head? Don’t feel discouraged if you only though of two or three kinds. Unless you’re a financial industry professional, chances are you only have heard of the two most basic types of policies: term and whole. It’s true that all the rest fall into one of those two major categories, but there are actually dozens of different combinations and variations of coverage you can get, depending on your needs, lifestyle, health status, age, and desires. Here’s a brief look at the multiple variations on a theme.
Whole vs Term
Every life policy is either whole or term. The former is permanent, while the latter comes with a specific expiration date. Term policies are typically sold in increments of five or ten years, include a fixed benefit amount, and come with level premiums (monthly, quarterly, or annual in most cases). Permanent, or whole, policies never expire unless you stop paying the premiums or sell them, and many come with cash value that builds up on a fixed schedule. However, the central difference between the two types is longevity. One has a fixed term of operation. The other can last as long as you live.
Cash Value or No Cash Value
Another way to categorize coverage types is to label them as can be sold for cash, or can’t be sold, have no cash value. If your policy includes a feature for build-up of monetary value and the provisions allow you to sell it, it’s important to know what you can get for it. If you want to sell your life insurance policy, it’s relatively easy to get an estimate of its approximate value quickly and painlessly via online resources. This is an important step for making a budget and planning what you’ll do with the money you receive. Just knowing whether you can sell is not enough.
Simplified, Guaranteed, and Group
Simplified coverage usually comes with no cash component and does not require a medical exam. Guaranteed contracts are categorized as term coverage and, as the name implies, are granted to any paying applicant regardless of their state of health. A group policy covers multiple people, and is most commonly used by companies who want to offer coverage to their employees, who have the option of accepting or declining the policy.
Universal and Variable
Universal life insurance comes with low premiums, is permanent, and features a cash buildup over the years. Variable insurance contracts are also a type of permanent coverage, but policyholders can invest the cash portion, what there is of it, in the stock market.
Read the Fine Print
One challenge people often face is the different terminology and legalese used by the various carriers. That’s why it’s imperative to read all the fine print on a contract before buying or selling. Yes, the process can take an hour or so and promises to be a tad on the boring side. The good news is that after you’re finished, you’ll be well-informed about how the policy works, how a sales provision operates, what the requirements are for sellers, and all the other pertinent data about the contract.
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