Understanding the different types of Life insurances in 2021

November 16, 2020

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RHI Agency Team

Understanding the different types of Life insurances in 2021

Nearly 60% of the American population is secured by some type of life insurance policy. This shows how popular life insurance policies are with people. Even though the term ‘Life Insurance’ is used to describe this policy, many are unaware of the fact that there are different policies within that banner.

In this article, we will help you familiarize the different Life insurance policies available.

What is a life insurance policy?

Before we get into the different types of life insurance policies, let us first understand the core concept of a life insurance policy.

A life insurance policy is a contract between the policyholder and the insurance company. The contract states that the insurance company must pay a lump sum to the policyholder upon their death. In return, the policyholder must pay regular premiums to the insurance company.

Why is Life Insurance policy so popular?

The life insurance policy covers the policy owner’s family or the beneficiaries upon the policy owner’s death. One of our greatest concerns is what happens to our family when we are longer there to support them. Life insurance helps the policy owners to provide for their families even if their death.

This aspect of Life Insurance policy makes it so popular. Also, Life insurance premiums may be also applicable for tax deductions.

Types of Life insurance policies

Now that we know what an insurance policy is, we can get into the nitty-gritty of the policies themselves. Life insurance can be broadly categorized into two based on their coverage length.

1. Term Life Insurance

 A term life insurance policy provides the death benefit to the beneficiaries only if the policyholder dies within a specific term. If death occurs after the term, there will be no payout. A term insurance policy has no cash value.

Examples of term life insurance are:

1.1   Level Term Life insurance

Level Term Life insurance is the most common type of term life insurance. Term Life insurance covers for the term with flat premiums. Based on the insurer and policy, you can also opt to renew or extend the term.

1.2   Return of Term

In Return of Term life insurance policy, the insurer will return the premiums to the policyholder at the end of the term. When compared with Level term Life insurance, Return of Term life insurance premiums are much pricier. However, this policy allows the policy owner to have a lump sum amount at the end of the term, and won’t lose the whole amount if the policyholder outlives the term.

1.3   Group life insurance

Group life insurance covers for a group of people> Most commonly, this policy is used by employers to insure the employees. Group life insurance is inexpensive compared to standalone insurance policies. The employee also has the option to add-on additional coverage.

1.4   Renewable Term life insurance

Renewable Term life insurance allows the policy owner to renew their insurance at the end of the term. During renewal, the cost of the premiums may be recalculated based on the age, employment, health, etc. of the policy owner.

1.5   Decreasing Term life insurance

In Decreasing Term Life Insurance, the death benefit will decrease over the term period. The premiums of the decreasing term life insurance are usually fixed. This type of term life insurance Is usually purchased to provide personal asset protection. Decreasing Term life insurance is less expensive when compared to level term life insurance.

1.6   Increasing term life insurance

In increasing term life insurance, the death benefit will increase in increments over the term period. Increasing term life insurance is not as popular as other types of insurance policies we have discussed here. This is largely di ethe fact the premiums also see a price hike as the term goes on.

2. Whole Life Insurance / Permanent Life Insurance

The second type of life insurance doesn’t have a term limit. In other words, the policy owner will be covered throughout their life, with no fear of losing coverage if the policy owner outlives the term period. Most permanent life insurances have a cash value.

Let us take a look at the different types of whole life insurance policies.

2.1   Whole life insurance

Whole Life insurance is simple and to the point. Whole life insurance has fixed premiums and provides cash value growth and payout upon the policyholder’s death.

2.2   Universal Life Insurance

In universal Life Insurance, the policyholder has the freedom to increase or lower the premium amounts. This is of great use if you fear that your financial stability in the future could face challenges.

2.3   Indexed Life Insurance

Indexed life insurance is similar to universal life insurance in a way that it has the potential for higher cash value growth. However, what sets it apart from other forms of permanent life insurance is that this cash growth is tied to a stock market index that you choose with the insurer. The cash value can grow or tank based on the stock performance. 

2.4   Variable Life Insurance

In Variable Life Insurance, the policyholder can divert the cash value growth into an investment account managed by the insurance agency. The earnings from the investment can be used to pay the premiums. However, if the investment does not generate any cash, defaulting the premiums can lead to a decrease in the death benefit account.

Which Life insurance policy is right for you?

When it comes to the type of insurance policies, choosing the right one is critical to fulfilling your objective of providing financial support for your family in your absence.

There are many factors at play when it comes to choosing the right policy. Everything from your age, your job, your financial stability, etc., is important when picking a life insurance policy.

This is why it is best to talk with experts in the field. When it comes to choosing an insurance policy, you can always trust RH insurance to provide you with the right guidance. We have been in this field for years and would love to help you make the right purchase. Contact us today to know more!

 

 

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