Insurance companies offer different types of life insurance, and it might not be very clear for clients when they start bombarding them with the multitude of options they have. To someone without any experience when it comes to life insurance, what they are for, when they should get them, or what type they should they get, the choices can be overwhelming.
To help these people decide that will come out with them paying for the right life insurance policy—we came out with the types of life insurance and what they have in store for current and potential policyholders.
1. Term life insurance
As stated in the underwriting, a term life insurance has a number of years set to cover the policyholder and their stated dependents. In this type of insurance, the death benefit that comes with the plan is paid when the policyholder passes during their coverage.
Term life insurance is considered to be the simplest and most accessible type of life insurance policy. Compared to the other types we will be discussing: term life insurance is the most affordable.
On average, term life insurance policyholders pay a monthly premium of 25.39 dollars, based on the plan of a healthy 35-year-old female.
2. Whole life insurance
Contrary to what term life insurance stands for, whole life insurance covers the policyholder for all of their life. It does not expire, and the policy has a value that can be equated to cash. This type of life insurance can also be an investment that is free from immediate taxes.
The premiums paid by the policyholder equates to the cash value that increases over time and can be withdrawn when the amount reaches a certain number based on the policy.
However, this type of life insurance is up to 15 times more expensive than term life insurance. That goes with whole life insurance paying out the same death benefit amount.
This type is suitable for policyholders with long-term dependents. In case they die, the dependents will receive the death benefit without worrying about policy coverage expiration, also called final expense insurance.
Companies selling final expense insurance will give the policyholder as much information as they can on how they can financially secure their dependents without worrying about the coverage period.
Which one is better?
Generally, term life insurance is a good option for people who want to secure an insurance policy on a budget. The accessibility of term life insurance makes it easy for people with more suitable for termed policies to pay only for the coverage type and length they need.
However, when compared side by side with whole life insurance, term life insurance may sound like a temporary umbrella against rainy days. With whole life insurance’s permanent coverage—that is, if you consistently pay your premiums—policyholders are assured that their dependents will not be left without financial protection when they pass.
With term life insurance, the same thing cannot be said. However, it is important to note that term life insurance can be converted to whole life insurance. Term life insurance policyholders can also opt to extend the coverage as they please.
The downside about whole life insurance is that policies under this type cost a fortune to some potential policyholders. This makes it difficult to maintain, leading to a number of policyholders surrendering their policies early.
All in all, the answer to which type of life insurance is better will depend on the following:
- Your coverage needs
- Your financial capacity
- Your dependents
With a term life policy, you will be able to get more coverage because they cost less. The downside is that the policy will not cover you until you pass unless you renew or convert. A whole life policy is expensive, and people who want to secure this type of life insurance often opt for lesser coverage to afford it, leading to less than ideal policies.
Who should you consult?
When trying to find out the best type of life insurance for you, it would be best to consult life insurance companies. This is not rocket science—they are the ones who create and sell life insurance policies, and they will be able to let you in on information about the suitable policies based on your needs.
A good assessment of your capacity and coverage needs can give them a clear idea of what type of life insurance is best suited for you. In doing so, they will also offer plans that are within your financial capacity.
Knowing this information can help you decide what type you’d need. This way, you can prepare beforehand and for the future.