Financial planning experts generally agree that life insurance is one policy most adults should have in place. However, just saying “life insurance” doesn’t clarify things very much. While all life insurance policies will pay a death benefit, there are sometimes substantial differences in how they operate. Keep reading to see the basics of three main types of coverage.
Term Life Insurance
When most people think of life insurance, this is the type of policy that comes to mind first. However, many people are still left wondering, “what is term life insurance?” If that question sounds familiar, rest assured you are not the only one asking it. Here are some of the basics to help you understand why term life insurance is such a popular choice.
This is perhaps the most attractive thing about term policies: They are incredibly affordable. That means that almost any budget can accommodate the added expense of coverage. Besides, when you think about the financial burden of dying without life insurance, the cost of a term policy seems even more minimal.
Higher Benefit Amounts
Unlike some other types of life insurance, the affordability of term policies allows many people to purchase higher benefit amounts. This is an excellent way to plan for paying off debt or to cover expected, large future expenses, such as your children’s college educations or weddings. It is also a great way to replace lost income to help your family maintain their current lifestyle.
Set Term Limits
As their name implies, these policies are for a set period of time: the term. You can decide upfront how long you need to keep coverage. The length of your mortgage, the ages of your children, or other life situations can help guide your choice. As a general rule, the longer your policy coverage will be in effect, the higher your annual — or monthly — premium will be.
Permanent Life Insurance
Unlike term insurance, these are lifelong policies. The most common form of permanent insurance is called whole life insurance. It will remain in effect as long as premiums are paid in full. A portion of each premium is set aside and invested. This money accumulates, as does the cash value of your policy. That means you may be able to borrow against it later on or cash out some of your benefits to help cover premiums. These policies are generally more expensive than term life insurance.
The cost of skilled nursing and in-home care has skyrocketed in recent years. Coupled with the fact that people are living longer, lives, it is no wonder that more people are looking into long-term care insurance. One way to streamline your insurance needs is to consider investing in a hybrid life/long-term care policy.
Hybrid insurance policies offer multiple types of benefits in a package that is generally more affordable than purchasing them separately. This is because the benefits often work in tandem. For example, the amount of long-term care benefits that is used may be deducted from the total death benefit of a policy.
There are myriad options when it comes to finding the right life insurance policy. Term, permanent and hybrid policies can all be good choices depending on your situation. It helps to work with a knowledgeable agent to understand your options and make an informed decision.