Types of Life Insurance
4 Major Types
Term Life
The basics: Term life insurance insurance has a specific end date of coverage. Choices of coverage lengths are generally 5, 10, 15, 25 or 30 years. It’s the cheapest way to buy life insurance because you’re buying only insurance coverage, for a finite period, and not paying for a cash value component within the policy.
Who is it good for: Term life insurance is ideal for people who want life insurance coverage for a specific debt or situation. For example, some people buy it to cover their working years as income replacement for their family. Some people buy term life to cover the years of a mortgage or other large debt.
Whole Life
The basics: Whole life insurance can provide coverage for the duration of your life. An account within the policy builds cash value over time by using part of your premium payment and adding interest. A policy will have built-in guarantees that the premium will not increase, the death benefit remains the same, and the cash value will earn a fixed rate of return.
Who is it good for: Whole life is suited for people who want lifelong coverage and are willing to pay for the guarantees provided by the policy.
Universal Life
The basics: Universal life insurance (UL) can be hard to understand because there are a few varieties and with very different features. The common element is that universal life can provide lifelong coverage. It can be cheaper than whole life insurance because it generally doesn’t offer the same guarantees.
With some forms of universal life you can vary premium payments amounts and rejigger the death benefit amount, within certain limits. UL policies often have a cash value component.
Who is it good for: Universal life can be good for someone looking for lifelong coverage. Some varieties of UL are suited for people who want to tie their cash value gains to market performance (indexed and variable universal life insurance).
Group or Supplemental Life
The basics: The life insurance you may have through work is supplemental life insurance, also known as group life insurance. It sets rates based on the group, not the individual.
Who is it good for: Because usually it’s free or inexpensive, group life insurance is a good value. It’s good as supplementary coverage to your own individual life insurance policy.