You may have heard of people who die, and their families exhaust all their savings shortly after. The families are left struggling to pay bills, and the children fail to continue with higher education. You want to avert the same fate by ensuring your family is financially protected in case of your death. But before committing, you want to know what kind of life insurance is available.

When you buy life insurance, you enter into a contract with your insurer, promising to pay a certain amount. In return, your insurer will pay your beneficiaries a certain amount upon your death. Life insurance ensures your loved ones are financially protected after your death to continue enjoying the quality of life they were accustomed to.

Term life and permanent life insurance are the primary types of life insurance. However, the two are further broken down. Under permanent life insurance, you could buy whole life insurance, universal life insurance, variable life insurance, final expense insurance, guaranteed issue life insurance, and accidental death benefit insurance.

Similarly, you could buy a level premium, annual renewable term, a return of premium, or decreasing term life insurance policy under term life insurance. Below, we’ll cover these types of life insurance to help you decide which is best for you.

Term Life Insurance

When you buy a term life insurance policy, you commit to paying the agreed premium each month for the policy period. And if you die during the term, the insurance company will pay your beneficiaries the agreed amount. Term life insurance is usually the cheapest form of life insurance policy because it has no cash value and is temporary. In most cases, buyers of term life insurance typically outlive the term.

So, how does it work?

As mentioned above, your beneficiaries will only receive the payout if you pass away within the policy term. If you took a term insurance policy for 30 years and died shortly after 30 years without renewing the policy, your beneficiaries get nothing. Similarly, if you outlive the policy and don’t renew it, the coverage ends, and you walk away with nothing unless you had return of premium term life insurance. However, many insurance companies will allow you to convert the term life policy to a permanent one.

Key Features of Term Life Insurance

• Fixed term coverage
• The death benefit is payable only if the insured passes away during the policy term
• No cash value component
• Term life insurance is straightforward, focusing solely on providing death benefits

What should you look out for when shopping for term life insurance?

• Can you renew the policy at the end of the term? This will come in handy if you develop health issues.
• Can the term policy be converted to a permanent policy? Keep in mind there is a window when this can happen. Ask your agent about it.
• Can you adjust the coverage amount? When you lose your job, you could struggle to pay your premiums; being able to adjust the coverage amount could help.

Types of Term Life Insurance

Let’s look at the types of term life insurances there are.

Level-Term Life Insurance (Level Premium)

Level-term life insurance is the most common type of term life insurance. The premium you pay remains the same for the entire term, and so is the death benefit.

Decreasing Term Life Insurance

With this policy, the premium remains the same, but the death benefit reduces over time. Decreasing term life insurance is ideal if you want a policy covering a debt you are servicing, like a mortgage.

Annual Renewable Term Life Insurance

This policy is renewed each year, with premiums increasing year after year. But you don’t need to reapply each year. Annual renewable term life insurance is best for someone looking for short-term life insurance. Keeping it for an extended period means higher premiums as the rate increases yearly.

Return of Premium Term Insurance

With this type of term life insurance, you’ll get all or part of your premiums if you live to the end of the policy term. Keep in mind the premiums are usually on the higher side.

Pros of Term Life Insurance

• It’s less expensive compared to permanent life insurance.
• It’s more flexible because you can choose how long you want the coverage.
• It is ideal for young families looking for temporary coverage.

Cons of Term Life Insurance

• It doesn’t build cash value.
• If you outlive the policy, you’ll pay higher premiums when you convert it to permanent life insurance or take another term life insurance.

Suitable Candidates for Term Life Insurance

Term life insurance could be good if you seek affordable coverage for several years. For instance, if you have young kids and want to ensure they are financially protected until they are self-sufficient or you have significant debts like mortgage, personal loan, and car loan. When you die during the term of the policy, your dependents won’t have to worry about these financial problems.

Whole Life Insurance

With a whole life insurance policy, you are covered for your entire life as long as you pay premiums as required. This means, unlike term life insurance that gives coverage for a specific period, whole life insurance guarantees payout to your beneficiaries at whatever time you pass away. Moreover, it also has cash value that accrues over time. It’s actually marketed as an investment.

Each time you pay your premium, the insurance company invests part of it to give your policy a cash value, and the amount grows over time. Once there is a substantial amount, you can withdraw or take a loan. The loan is paid back with interest, but that doesn’t mean you have to.

However, don’t take out too much, as all outstanding loans are deducted from the death benefit. The interest rate charged will depend on your insurer but is usually lower than taking a personal loan.

Key Features of Whole Life Insurance

Here are some key features of whole life insurance:

• It has fixed premiums
• Has cash value that you can withdraw from or take out a loan
• Coverage lasts your lifetime as long as you pay premiums

Pros of Whole Life Insurance

• Offers lifetime coverage
• Has cash value that you withdraw or borrow
• The loans are tax-free
• The death benefit is guaranteed as long as you pay premiums
• Fixed premiums unless for non-level policies

Cons of Whole Life Insurance

• Much more expensive than term life insurance
• It’s more complex than term life insurance due to the inclusion of the saving component
• You may miss other attractive opportunities if it’s an investment you want
• You can’t adjust your premium

Suitable Candidates for Whole Life Insurance

Whole life insurance is suitable for individuals who want to use their life insurance as an investment but also seek policies that guarantee a return on cash value. It is also suitable for people with lifelong dependents like kids with special needs or wealthier individuals who want to help their beneficiaries settle estate taxes after their death.

Universal Life Insurance

Universal life insurance offers all the benefits of permanent life insurance but adds flexibility, which makes it very appealing. Universal life insurance gives entire life coverage, and as long as you pay the premium, your beneficiaries will receive death benefits upon your demise. Like other permanent life insurance, it has a cash value you can withdraw from or take out loans.

Universal life insurance allows you to increase or lower your premium to a certain extent. The additional funds are channeled to the cash value when you pay more. Moreover, you can pay less than the required premium if you have enough cash value to cover your premium and other related costs.

However, remember not to deplete the cash value, as it could cause your policy to lapse. This feature benefits people with inconsistent income as they can pay more during the better months and less when not doing well financially.

Moreover, you can decrease your death benefit; some insurance companies even allow you to increase it. Reducing the death benefit can be very helpful when some of your beneficiaries pass away. Conversely, raising the death benefit can help if you want to add more beneficiaries but don’t want to reduce the share of other beneficiaries.

Key features of Universal Life Insurance

• Flexible premiums
• Flexible death benefit
• It has a cash-value component
• The coverage lasts your lifetime, provided you pay the premiums

Pros of Universal Life Insurance

• It has flexible premiums within limits. You are allowed to pay more than your premium. The excess amount is added to the cash value and earns interest. You can also reduce your premium if you have sufficient cash value.
• Like other permanent life insurance, the cash value earns interest.
• Some types of universal life insurance will allow you to increase or reduce your death benefit.
• You can borrow or withdraw from the cash value.

Cons of Universal Life Insurance

• Reducing your premium too often could deplete the cash value, which could lead to policy lapse.
• Your beneficiary won’t get the cash value. Only you can benefit from the cash value, so use it while still alive.

Suitable Candidates for Universal Life Insurance

Universal life insurance is ideal for individuals looking for permanent coverage but with flexible premiums. Moreover, individuals looking to earn interest on their investment would also find it a fit.

Variable Life Insurance

Variable life insurance is a form of permanent life insurance. Like other permanent life insurance policies, you will pay a premium for your entire life, and upon your death, your beneficiaries will receive the death benefit. The premium goes towards the insurance cost, and the rest is paid into a cash-value account.

The cash value is invested in assets like mutual funds, stocks, or bonds, and you are the one to decide where it’s invested. If you are unwilling to risk your entire cash value, you could put some of it into a noninvestment account with a fixed interest rate.

Often, people confuse variable life insurance with variable universal life insurance. While both policies give you control of how your cash value is invested, they differ in that variable life insurance is more like whole life insurance, and variable universal life insurance is more like universal life insurance.

Key features Variable Life Insurance

• It has an investment component.
• Cash value accumulation is based on the performance of the chosen investments.
• You are covered all your life as long as you pay the premium needed.

Pros of Variable Life Insurance

• The cash value growth is tax deferred.
• There’s potential to earn substantially from investments.

Cons of Variable Life Insurance

• The rate of return is not guaranteed. The interest is determined by how well the investment performs.
• It’s very complex because policyholders are required to make investment decisions.
• There is a risk of policy lapse when the investment underperforms and the cash value is insufficient to cover policy expenses.

Suitable Candidates for Variable Life Insurance

Variable life insurance is ideal for individuals who want permanent insurance coverage but also participate in their life insurance investments. If this is you, ensure you have basic investment knowledge or talk to a financial expert before deciding.

Final Expense Insurance

Final expense insurance, or burial insurance, is a type of permanent life insurance policy. Once you get the policy, you’ll pay the set premiums, and your beneficiary will receive the death benefit once you pass. The policy is meant to cover end-of-life expenses like burial arrangements, nursing home fees, or hospital bills, but the beneficiaries can use the money as they see fit. The policy has a cash value, so you can withdraw or take out a loan. However, the amount is deducted from the death benefit if you die before repaying the loan.

Key Features of Final Expense Insurance

• It has fixed premiums.
• It has fixed death benefits.
• It has a cash value component.

Pros of Final Expense Insurance

• Easy application process – in most cases, even a medical exam is unnecessary. But you will answer health questions.
• Faster approval – in some cases, coverage can start the same day you apply.
• It is more affordable than most life insurance policies.
• It is suitable for individuals who can’t get other policies due to health issues or age.

Cons of Final Expense Insurance

• The death benefit is lower compared to other insurance policies.

Suitable candidates for final expense insurance

Final expense insurance is suitable for anyone who doesn’t qualify for other life insurance policies due to age or health issues. Moreover, this is a better choice if you can’t afford higher premiums.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance is a type of whole life insurance also known as guaranteed acceptance life insurance or no question life insurance. ‘Guarantee’ means anyone can purchase this policy despite their health issues or age. The policy offers the same benefits as whole life insurance, including a cash value component. However, depending on the insurer, it has a two to three years waiting period. If you pass away during the waiting period, your beneficiaries will only receive the paid premiums and interest unless you die from an accident.

Key Features of Guaranteed Issue Life Insurance

• It has a cash value that you can draw from.
• It has a waiting period of two to three years.
• The coverage lasts until the day you die, provided you pay the premium.

Pros of Guaranteed Issue Life Insurance

• No medical exam needed
• Easy to apply
• You don’t need to answer health questions

Cons of Guaranteed Issue Life Insurance

• The death benefit is low compared to other permanent life insurance
• It has a waiting period
• Premiums are higher compared to payout

Suitable candidates for guaranteed issue life insurance

It suits people who want permanent life insurance but cannot qualify due to health issues or old age.

Accidental Death Benefit Insurance

Accidental Death Benefit insurance can be added to your existing life insurance for additional coverage when death is the result of an accident. Fidelity Life offers this unique standalone product with guaranteed coverage and no medical exam required.

Fidelity Life offers ADB products with coverage amounts ranging from $50,000 to $500,000. Applicants between the ages of 20 and 59 years old are guaranteed approval. Once your policy is active, as long as you make regular premium payments, your family will receive a lump sum payment in your chosen benefit amount should you die in a covered accident.

Key Features of Accidental Death Benefit Insurance

• The coverage is specifically for death resulting from covered accidents
• No underwriting requirements
• Doesn’t accrue cash value

Pros of Accidental Death Benefit Insurance

• A medical exam is not needed
• The application process is quick and easy
• More affordable than most life insurance

Cons of Accidental Benefit Insurance

• The coverage is limited to deaths resulting from accidents
• Accidents that happen under the influence of drugs or alcohol or while committing a crime aren’t usually covered.

Suitable candidates for ADB insurance

ADB insurance is ideal for anyone looking for extra coverage for their family. Adding the protection of ADB to a life insurance policy can help your loved ones cover unexpected costs after you’re gone.

Conclusion

There you have it: 7 types of life insurance. It’s now up to you to choose the best life insurance policy for you and your loved ones. So, how do you choose the right insurance coverage? Well, it’ll come down to you. You need to understand your situation so that you don’t buy a policy and then regret it a few years later. Consider your age, income, outstanding debt, dependents’ age, and future financial obligations.

At Fidelity Life, we understand how hard it can be to find the right life insurance policy. That’s why we have a life insurance expert on the line, ready to listen to you to help you choose the right coverage. Contact us now for a free life insurance quote.