The Different Types of Life Insurance

When you hear the words “life insurance,” what comes to mind? Maybe a young couple with kids and a mortgage, or someone with a spouse who might have financial difficulties after a loss. These are both normal situations in which life insurance can offer greater peace of mind. Let’s dive deeper into the whats, the whys and the whos of life insurance!

What Is Life Insurance?

Life insurance is a crucial financial tool that provides protection and peace of mind to individuals and their loved ones. It offers financial security and support in times of uncertainty, ensuring that your family’s financial needs are met even after you’re gone. In this article, we will explore the fundamentals of Life insurance, including some of the different types available — Term Life insurance, Whole Life insurance and Final Expense coverage (which is a type of Whole Life insurance). We will also discuss who each type is for, how they work and the life situations in which life insurance becomes essential.

Term Life Insurance

Term Life insurance can be a straightforward and affordable form of life insurance. It provides coverage for a specific term or period, typically ranging from 10 to 30 years. Unlike Whole Life insurance, it does not build a cash value component.

Term Life insurance is an option for people seeking affordable coverage for a specific period when their financial responsibilities are highest, such as when raising a family or paying off a mortgage.

When you purchase a Term Life insurance policy, you select the coverage amount and the term you want to be insured for. You then pay regular premiums for the duration of the term. If you pass away during the term, the death benefit is paid to your beneficiaries. If the term ends and you are still alive, the coverage ceases and there is no cash value or payout.

For this reason, Term Life insurance premiums can be lower than those in a Whole Life policy.

Whole Life Insurance

Whole Life insurance, which many people refer to as permanent life insurance, is designed to provide coverage for your entire lifetime. Whole Life offers both a death benefit (the payout to beneficiaries upon the policyholder’s death) and a cash value component that grows over time. This cash value grows at a guaranteed rate and is tax-deferred, meaning it won’t be taxed until withdrawn.

Whole Life insurance could be a good fit for individuals who seek lifelong protection and want to accumulate a cash value over time. It can work for those who want to leave behind a financial legacy for their loved ones or plan to cover estate taxes and other final expenses.

With a Whole Life insurance policy, you pay regular premiums. A portion of these premiums goes toward the cost of insurance coverage, while the rest is invested by the insurance company to build the policy’s cash value. Over time, the cash value accumulates, and you can borrow against it or surrender the policy to receive the cash value (minus any surrender charges). The death benefit is paid to the beneficiaries — income tax-free — upon the policyholder’s passing.

Final Expense Coverage

Final Expense coverage, also known as burial or funeral insurance, is a type of Whole Life insurance. It differs from traditional Whole Life insurance in having a lower death benefit, intended to cover the costs associated with end-of-life expenses.

Final Expense coverage is suitable for older individuals who may not have substantial savings or other life insurance coverage to handle funeral expenses and other final debts, and who want to spare their loved ones the cost.

When you purchase Final Expense coverage, you pay regular premiums to keep the policy active. The death benefit is smaller than other life insurance types, helping to keep premiums affordable for most while still covering essential final expenses. The payout is made to the beneficiaries upon the policyholder’s death and is received income tax-free, allowing them to cover the costs associated with the funeral and related expenses.

Situations When Life Insurance Is Important

There are many reasons why you should consider a life insurance policy, and they will change as you do. Here are a few of the common situations when it’s time to look into the different kinds of life insurance.

Legacy and estate planning: Whole Life insurance can be used to pass on wealth or cover estate taxes, ensuring that assets are passed on to heirs.

Family and mortgage protection: Term Life insurance can help ensure that your outstanding mortgage payments are covered, or your dependent family members have financial peace of mind.

Peace of mind for funeral costs: Final Expense coverage can give loved ones peace of mind, knowing that final expenses are covered. This can help with budgeting and end-of-life planning.

There are many situations where life insurance can offer added financial security — this is just a start to the ways in which life insurance can be a benefit.

Conclusion

Life insurance plays a vital role in safeguarding your loved ones’ financial future and ensuring they are protected during life’s uncertainties. Term Life insurance provides affordable temporary protection, while Whole Life insurance offers lifelong coverage and a cash value component. For seniors, Final Expense coverage is a type of Whole Life insurance that provides a specific solution for covering funeral and other end-of-life expenses. The right type of life insurance depends on your individual needs, financial goals and the life situations you want to protect against.

By understanding the basics of each type, you can make an informed decision to secure your family’s financial well-being. Want to know more? Reach out to one of our licensed agents to find out which kind of life insurance is right for your unique stage of life.

This is a solicitation of insurance. A licensed agent/producer may contact you. Coverage, products, and features may not be available in all states, may vary by state, and will vary by policy. Rates may be higher due to tobacco use. Your rate and availability for this product will be subject to underwriting. Policies contain specific limitations, exclusions, termination provisions, and requirements for keeping them in force. Please see your policy or contact the insurance company for full details. Approval is based on your answers to the questions on the application and information obtained from other sources. Accessing the cash value of a policy will reduce the available cash surrender value and the death benefit. Any loans from a policy’s cash value are subject to interest and the balance is deducted from your death benefit. Life insurance is not a bank deposit, is not federally insured, may involve risk, and may lose value. All guarantees are based on the claims paying ability of the life insurance company.

Final expense life insurance can be used by the beneficiary designated as needed rather than being limited to specific funeral services and providers. Final expense life policies will have a lower face value than most traditional term or whole life policies as they are intended for a specific purpose of covering those final costs rather than providing comprehensive support for surviving family members. This type of policy generally doesn’t require a medical exam, but premiums will be higher the older you are, and some benefit payouts may be limited during the first few years of coverage for those with significant health issues. Reducing or skipping premium payments will impact the amount of interest paid and may impact how long the policy lasts.