What is Life Insurance? How Does it Work?
We admit it – life insurance can be confusing. There are different types and they all serves different purposes, and can be paid for in different way. Some types can even be attached to other types (like putting term insurance inside of universal insurance). If you’re scratching your head, you’re not alone!
Here are the basics, so when you’re exploring Term, Universal and Whole insurance, you have a better idea of what each is, and how they relate to each other.
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Two basic categories of Insurance
There are two basic categories of insurance:
Permanent: Permanent means there is no ending date, and your premium price will never change. Universal and Whole insurance falls under this type.
Temporary: Temporary means there is an end date you your policy and/or the price can increase. Term insurance falls under this type.
What does Universal, Term and Whole mean?
These terms refer to three basic types of life insurance:
Term: Term life insurance gives you fixed-rate coverage for a specified period of time (usually 10 or 20 years, but there are other options). Term life insurance provides financial coverage ― such as mortgage and debt protection, and income loss coverage to loved ones ― in case of unexpected death.
Whole: Whole life insurance gives you just that ― insurance protection for your whole life, with a premium that remains level. Whole Life Insurance protects your family while also building cash value, so you’re protecting your family and working towards your long-term financial goals.
Universal: Universal Life Insurance is our most flexible insurance protection, and offers both permanent and term coverage with flexible investment options.
What is each type best for?
Term: Term life insurance is best if you only need insurance for a fixed amount of time, such as to cover a debt, so in the case of your death your dependents are covered. Example: Say you have a mortgage that you’ll have for the next 20 years or so. But, you don’t want life long coverage, because you have savings/investments and you don’t think your dependents will need any more after you pass. You want a 20-year term policy so that your dependents wouldn’t be left paying off your mortgage if you pass away, but after you pay off the debt, you’ll also end your life insurance and not be paying unnecessary premiums.
Whole: Whole life insurance gives you just that ― insurance protection for your whole life, with a premium that remains level. Whole Life Insurance protects your family while also building cash value, so you’re protecting your family and working towards your long-term financial goals.
Example: Get Kris to Write?
Universal: Universal Life Insurance is our most flexible insurance protection, and offers both permanent and term coverage with flexible investment options. This is best if you need options from both of the above types.
Example: You want life-long insurance, but you also have a debt that needs to be covered until you pay it off. You might buy a Universal policy and add a Term policy into it. So, you’d be paying premiums for the lifelong and term policy, but when your debt is paid off you can cancel the term portion which will lower your premiums and you can just pay for your lifelong coverage at a lower rate.
How do I choose what is best?
The best way to choose life insurance is by looking at your individual needs. How much money will your dependents require if you pass away? Do you have savings to cover final expenses? Do you want to leave your heirs a life insurance inheritance? Do you have a spouse that will require financial help if you die? Do you have debts you don’t want to leave to your children?
The way to get the best value out of your life insurance is to buy it to match the amount of time you want it to cover. Don’t buy a policy that lasts longer than you need it.
Keep in mind that Life Insurance is a bit complicated when you’re trying to talk in generalizations, and it makes a lot more sense when you can relate it to your personal situation. Our Life Advisors only job is to help you make sense of all this, and find the coverage that is perfectly suited to you, so the best way to choose your life insurance is to have an advisor help you. Schedule an appointment today, and let our experts make the process easy on you.
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