In 2020, studies discovered that the number of Americans who owned life insurance was trending down, largely due to people under the age of 45 declining on purchasing it. While life insurance can feel meaningless when you’re living on your own, once you bring a family into the mix it becomes essential. Without it, you risk leaving your family wide open to financial struggles in the event of your untimely death.
That said, sorting through and buying life insurance is a massive pain. How do you sort through all the legal talk to find what you need?
Why, by checking our list of the different types of life insurance, of course! Let’s start with the basics.
The Different Types of Life Insurance Start With Term and Whole
The first type of life insurance most people talk about is term life insurance. This covers life insurance sold in chunks of timed intervals (i.e, “x” amount of years).
Annual renewable life insurance falls under the same boat, as it covers you for a year before giving you a renewal option (if you wish to continue). While term life insurance tends to be the least expensive of them all, the set limit means if you let it expire, you lose the benefits.
On the other side of the “table” is whole life insurance. Your beneficiaries get a set amount of compensation on your death, the policy lasts until your death, and you pay the same amount for every payment.
It is through whole life insurance that the financial idea of infinite banking (a way to gain money through life insurance) functions. The value of the insurance will grow as time goes on (since part of your premium payments feeds back into the value). On the downside, it ranks in the more costly sector of life insurance policies.
Universal Life Insurance and Friends
The main connective tissue of universal life insurance is that they grow and evolve alongside your finances, and offer a little more freedom in parts than their brethren. Indexed universal life insurance links all monetary value your policy has to a stock market index.
As the stock improves, so will your payout and the worth of the policy. However, this also means that you’ll lose value if the stock performs poorly. You can alter premiums with relative ease, but there are also limits on how much growth you can get from the “stock”.
Variable universal life insurance policies base their value instead around investment accounts (think brokerage accounts or bonds). This means your policy can grow in value if your account does well, but this also means you need to have one eye on the market at all times to make sure you don’t torpedo in value.
There is a variant of this insurance known as variable life insurance, which makes sure you get money on death regardless of market health. However, your premiums are locked in on a set value and you can’t change them.
Joint life and survivorship life insurance also exist as joint policies if you want to get a policy in tandem with a spouse. Joint life pays a benefit to the second spouse when the first one dies, and survivorship pays a bonus to the kids of a couple only when both spouses die.
Finding Peace of Mind in Life Insurance
Now that you have this guide to the different types of life insurance, you’re ready to help protect your family with a little more peace of mind! And for more on staying ahead in the complicated world of finance, make sure to check out the other articles on our blog!