If you judge by the ads you see on TV for “Grab a Quote” or “Cheap Insurance R Us,” the only differences between life insurance policies for a given individual are the amount of coverage, the cost, and how long you want the policy to last. Types of life insurance.
So why not just pick the cheapest policy and be done with it?
The companies selling insurance based on price desperately want you to think life insurance is a commodity—that the only difference between their insurance and someone else’s insurance is price—and theirs is cheapest.
The fact is that there are different types of life insurance, intended for different purposes. You’ll have the best coverage when you match the type of insurance with the job you want it to do.
Term Life Insurance
The most basic type of life insurance is term insurance with no riders. (The purpose of life insurance riders is to give the policy benefits that aren’t included in the basic version.)
Term insurance is also the least expensive—at least in the short run—because it pays out only if the policyholder’s death occurs during the “term” of the policy. Renewing a term policy at the end of the term is more expensive—sometimes several hundred percent more expensive. That’s why it may only be less expensive in the short run.
Mortgage term life insurance
But term insurance is ideal for covering short-term needs. Term insurance is sometimes called “pure” life insurance, because the only the thing the insurance company offers is a death benefit—if the insured dies during the term.
Permanent Life Insurance
The three most common types of permanent life insurance are whole life, universal life, and variable life. Insurance companies may offer various hybrid policies, such as universal whole life, variable whole life, and variable universal life.
But for now, we’ll stick to the basics: whole life, universal life, and variable life.
All permanent life insurance policies have two things in common:
They’re designed to provide coverage for your entire life. In other words, permanent coverage. Hence the name. As long as the premium gets paid, the coverage lasts until the bitter end—your bitter end.
In addition to a death benefit—a legacy—these policies offer living benefits, which are all related to cash value —the internal buildup of money within the policy that you have access to, as the policy owner.
The differences among whole life, universal life, and variable life involve:
How the growth of the cash value is calculated.
What guarantees the company offers.
Whole life policies accumulate cash value based
Which company is best for term life insurance