This is a beginner’s guide to the different types of life insurance policy out there. While we have tried our best to explain as many of the terms as possible, checking with what your provider offers in your locality is always best as they will the most up-to-date information available for your jurisdiction.
Two Types
There are two main types of life insurance policy, and while they can be sub-divided further and given weight as to what is better given your personal circumstance, they largely fall into the term life insurance and whole life variants. These are obviously just two names for them, and they are called various other things so be sure to look at the variations of each type.
Term
This is more of a fixed term point, where you pay life insurance for a set period of time, say thirty years, and then, at the end of that period, if you haven’t made a claim (i.e., passed away) then some policies pay out at the end while others convert into a whole life policy. These can be subdivided further into level term which means that the entire time the policy is active that the amount received is the same as long as you are within the term period. Decreasing term changes over time usually a reduction in benefit on an annual basis.
Whole
Sometimes called permanent insurance, whole life insurance exists for the whole of your life and pays upon death. There are subdivisions here that traditionally fall into traditional whole life, universal life and variable universal life and further subdivisions therein:
- Traditional whole life insurance – this is where the cash value will pay out if all payments are made on time and that amount increases the more that is paid into it. Some policies are strong enough to make loans against and dividends pay out at certain points.
- Universal life insurance – this can be more flexible in terms of premium structure and cannot be sold as an investment but can be surrendered for its cash value. You pay in monthly and this contributes to the final amount paid out with a guaranteed minimum growth by the provider as long as the baseline amount is met with bonuses for payments made into it over that amount.
- Variable life insurance – this is where the payout amount is not guaranteed because it is invested in the same way a mutual operates. There are numerous sub-divisions for this depending on the investments made and the people you work with.
Long-Term Care
This is usually discussed alongside life insurance because it mitigates against the cost-of-living expenses for homes if certain ages are met or medical requirements are necessary. There are plenty of different options here so seek out plenty of guides if you want to see if LTC insurance is right for you. Sometimes if there is a biological imperative, such as Parkinson’s that can be discovered early, it can be seen as a smart investment to ensure you are well-looked after when the symptoms become unmanageable.
